Planning for the TCJA Estate & Gift Tax Sunset

The Tax Cuts and Jobs Act of 2017, or TCJA, provided the largest tax overhaul since the Tax Reform Act of 1986. Under the TCJA, the federal estate and gift tax exemption amounts more than doubled from $5.6 million to $11.8 million for an individual—indexed for inflation. For 2024, the exemption amount is the highest it's ever been at $13.61 million for an individual and $27.22 million for a married couple.

On January 1, 2026, the TCJA is scheduled to sunset these higher estate and gift tax exemption amounts. Without further congressional action, the exemption amounts will revert to 2017 levels, adjusted for inflation. These amounts will likely be set at approximately $7 million for an individual and $14 million for a married couple. Keep in mind that the 40% estate tax applied to wealth transferred at death is above and beyond the estate tax exemption in the year of passing—generally in the year of the passing of the surviving spouse for a married couple.

Options to consider

While it's possible the increased estate and gift tax thresholds may be extended or made permanent by legislation, we believe the exemption amounts will return to 2017 levels in 2026. As tax changes loom on the horizon, here are a few considerations.

Evaluate your gifting capacity

Before considering whether you should utilize your exemption, evaluate your gifting capacity so you can gift with confidence—knowing current and future gifts won't affect your long-term financial success. While gifting cash may be the most common, gifting limits may also apply to a variety of other options like forgiving loans to family members or gifting discounted shares in a business. Gifting is a powerful tool that has many uses if implemented as part of a strategic plan.

Use the exemption before 2026

If you have a taxable estate today, evaluate the appropriateness of using your exemption before it sunsets in 2026. In certain cases, it may make sense to lock in a portion or all of the increased exemption amounts because the IRS has clarified there would be no clawback of large lifetime gifts made during the increased exemption period. Due to the many variables at play, we recommend working with your wealth consultant and planner to assess this option.

Determine a measured approach for tax liability

In most cases, estate tax liability is an issue faced by individuals who inherit from an estate, rather than the deceased individual or their spouse. Taking this into consideration—along with the 2026 impending estate tax sunset—consider prioritizing how to address the estate tax burden you may not wish to place on your family. Remember, even if your estate can technically afford to pay the tax, simply identifying and liquidating the appropriate asset can create significant family discord. You should strategically prioritize and define your lifestyle and retirement goals versus your legacy goals as part of your overall plan.

Review your estate documents

The upcoming estate and gift tax law changes could be a good opportunity to review your existing estate documents to ensure they're updated and aligned with your current goals. Estate documents should typically be reviewed every 1 to 3 years to ensure they remain consistent with present wishes and changes in your family or situation.

By the numbers

Here is an example of the impact of the TCJA sunset for a married couple with $50 million net worth—assuming both individuals were to pass away in a selected year. In this example, the TCJA sunset has increased their estate tax liability by around $5 million in 2 years.

Other important changes in 2026

You should also keep in mind other provisions of the TCJA that will change in 2026. You have two more years—2024 and 2025—to take advantage of several, mostly individual tax breaks enacted by the TCJA. Here are a few of the changing provisions:

• Top personal income tax rate will return to 39.6% from the current top rate of 37%.
• Current high levels of standard deduction—$27,700 for married couples in 2023—will revert to lower levels.
• IRC Section 199A will expire—also known as the Qualified Business Income, or QBI, deduction.
• Exemption amount applicable to calculating the Alternative Minimum Tax, or AMT, will revert to lower levels.
• The state and local tax limitation that restricts the deduction of state and local taxes to $10,000 will disappear, allowing all state and local taxes to be itemized deductions—subject to AMT limitations.

Build and protect your wealth in 2024 and beyond

With higher inflation, interest rates and economic uncertainty, there are many factors out of our control in the current financial environment. However, collaborating with your wealth consultant and planner to build a long-term, comprehensive wealth strategy can give you some level of control in your decisions and your financial future. Doing so will provide you with peace of mind that the wealth you've worked hard to build will continue to grow and be protected.