Back To Top

Navigating the Impending Changes: Federal Estate and Gift Tax Exemption Provisions to Sunset in 2025

The landscape of federal estate and gift taxes is poised for a significant change that could have major implications for individuals with substantial estates. The federal estate and gift tax exemption provision, a cornerstone of estate planning, is set to sunset after 2025 to its pre 2018 amount adjusted for inflation.

Federal Estate and Gift Tax Exemption Overview

The federal estate and gift tax exemption serves as a critical aspect of estate planning, determining the threshold at which an individual’s estate becomes subject to federal taxation.

The 2017 Tax Cuts and Jobs Act (TCJA) almost doubled the estate and gift tax exemption for individuals, raising it from $5.6 million to $11.18 million, with adjustments for inflation starting in 2018. By 2023, the indexed exemption reached $12.92 million ($25.84 million for couples). This high exemption level has offered substantial relief to many taxpayers in recent years.

Sunset Provision

However, if no action is taken by Congress, it’s anticipated that the inflation-adjusted exemption will revert to around $7 million ($14 million for couples) by 2026, effectively halving the limit. This will make a larger portion of your wealth subject to the 40% estate tax rate.

Potential Impacts

The potential reduction in the federal estate and gift tax exemption could have several significant impacts on estate planning:

  1. Increased Tax Liability: Individuals with estates valued above the new lower exemption threshold could face increased federal estate taxes upon their passing. Proper planning is crucial to minimize the impact on heirs and beneficiaries.
  2. Rethinking Gifting Strategies: The higher exemption provided an opportunity for individuals to make significant tax-free gifts during their lifetime. With the looming decrease, potential gifting strategies may need to be reevaluated to maximize tax efficiency.
  3. Reviewing Existing Plans: Individuals who designed their estate plans based on the current high exemption should consider revisiting their plans to ensure they remain aligned with their goals and objectives.

Considering these upcoming changes, individuals and families with substantial wealth should reassess their estate planning. If you anticipate having a taxable estate after 2025, take action now and avoid waiting until the deadline approaches. Contact us today so we can help you strategize.

About the Authors

Elaine Cain, CPA

As the leader of our Family Wealth Services Team, Elaine provides comprehensive tax, estate, trust, and gift planning and advisory services to wealthy families and individuals. Elaine also has extensive experience in conducting audits and providing tax compliance and consulting services to nonprofits and governmental entities.

Jim Snyder, CPA, CSPM

Jim Snyder

Jim is experienced in providing income and estate planning services, business consulting, and estate and trust administration services to successful individuals in many professions, especially engineering, law, technology and real estate. He also provides strategic guidance and planning for clients involved in stock option transactions and wealth transfer.