The federal estate tax, gift tax, and generation-skipping transfer tax exemptions (the “exemption amounts”) have increased to unprecedented levels since the enactment of the 2017 Tax Cuts and Jobs Act (the “2017 Act”) that doubled the $5 million exemption amounts to $10 million, as adjusted for inflation. In 2024, the exemption amounts were $13.61 million per person ($27.22 million per married couple) and in 2025 are $13.99 million per person ($27.98 million per married couple), meaning assets of equal value may be transferred during life or at death without incurring transfer taxes.
These enhanced exemption amounts are scheduled to sunset (expire) at the end of 2025. The reduced exemption amounts will revert to $5 million adjusted for inflation, to an estimated $7.2 million per individual ($14.4 million per married couple). In addition to many other income tax implications of the sunset not covered here, the estate, gift, and generation-skipping transfer tax rates will increase to 45%, up from the current 40%.
These changes will occur unless Congress acts, and while that possibility is much more likely post-election, we cannot predict when and what will happen. We obviously now know the Republicans will control the White House and both chambers of Congress. President-elect Trump has said he will “seek an agreement to extend the expiring tax provisions in the [2017 Act] within the first 100 days of reentering the White House”[1] and House Speaker Mike Johnson has targeted April for tax law extension and other key priorities being passed in a single bill, with the hope of President Trump “signing the bill into law by Memorial Day [as] the worst-case scenario.”[2] However, given the sheer volume of priorities slated for this single bill and musings about possible disagreements on terms, path, and funding of such an agreement, substantial uncertainty remains with respect to how, when, and what portions of the 2017 Act will be extended.[3]
From a historical perspective, new administrations generally have tax legislation goals following inauguration and want to act swiftly, but that doesn’t always come to fruition. In fact, in the past four decades, the first large tax package passed by each new administration came no earlier than June of the first year of the administration, and as late as August of the second year of an administration. With history as a guide, the lesson is not to assume the law will change quickly.
So, it’s prudent to continue planning to be ready if the law does change as of January 1, 2026. Waiting until the third or fourth quarter of this year to start the planning process may well prove to be too late. Now is the time to review your current estate plan and evaluate the impact of any potential changes in the tax laws.
There are a variety of estate planning techniques to consider in order to take advantage of the enhanced exemption amounts if tax planning is a primary goal. However, tax planning should not be the only consideration – control and governance of businesses, family dynamics, and special needs should have an equal seat at the table, because wealth transfers are irrevocable and should be well vetted and understood fully before finalizing any plan.
Plan as if the Scheduled Sunset Will Occur
Based on current law, in order to take advantage of the enhanced exemption amounts, any chosen planning structure and gift must be irrevocably and fully completed by December 31, 2025. With the current uncertainties in the tax laws, now is the time to start planning for the sunset of the exemption amounts. It takes extended time to discuss the various planning options, develop the appropriate strategy, review, and understand documents and mechanics, hire required professionals, complete all necessary requirements, and execute the plan. This process can be further delayed by an expected influx of families wishing to explore this type of planning; lawyers, accountants, financial advisors, valuation and appraisal experts, bankers, and clients are all going to be very busy and December 31, 2025 will be here soon. We don’t advise relying on the hope that the 2017 Act will be extended promptly, or that any law change in 2026 and beyond will be retroactive. It is prudent to continue planning to be ready if the exemption amounts decrease as of January 1, 2026.
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[1] Alexander Rifaat, “Trump Plans to Act Fast on TCJA Extension,” Tax Notes, December 10, 2024.
[2] Asha Glover, “House Speaker Sets April Target For Tax Law Extension Vote,” Law 360, January 6, 2025.
[3] Cady Stanton and Doug Sword, “Tax World May Have to Wait for Big Tax Bill,” Tax Notes, December 4, 2024.