On December 31, 2025, the sweeping piece of legislation passed in 2017 referred to as The Tax Cuts & Job Act will expire. Depending on the outcome of the election and Congressional constituency, the Act may not be extended or if extended, could be modified significantly.
TCJA transformed the tax landscape for businesses and individuals by lowering rates and adjusting laws to stimulate economic growth. When the Act sunsets, the tax rates/laws will revert to pre-TCJA levels1. This includes the estate tax exemption amount which will be reduced by roughly half once accounting for an inflation adjustment since the law was passed. If you think your estate is valued greater than the inflation-adjusted pre-TCJA exemption, the time to consider new or amended estate planning strategies is now. Financial advisors and estate attorneys who specialize in planning for high-net-worth clients anticipate they will be inundated with requests in 2025, creating a potential bottleneck and making it difficult to finalize document plans before the law sunsets.
Today, the lifetime exemption for individuals is $13.6 million and just over $27 million for married couples filing jointly1. As such, estate planning applies to very few households. However, beginning January 1, 2026, those amounts will reduce significantly to roughly $7 million for individuals and $14 million for couples filing jointly1. This is a sizable adjustment and makes estate planning relevant for a much higher number of high-net-worth households. Estates valued above these exemption levels will be subject to an estate tax of as high as 40%1.
Thoughtful estate planning takes time and often involves addressing sensitive family concerns. It is not atypical for partners (i.e. husband and wife) to approach planning with different perspectives that need to meld together to develop a cohesive and comprehensive plan. First and foremost, both parties must be comfortable that their own needs will be comfortably met if they decide to either max one spouse’s current gift tax exemption or possibly both. That takes detailed cashflow planning and discussions about possible strategies (such as SLATs – see below) which often require education, discussion, and multiple rounds of scenario modeling.
Once this fundamental premise is reached, other decisions arise as to how much to leave to children vs charities (and under what structure to best mitigate taxes), whether to leave the assets for the children in trust (vs outright) to protect the assets from divorce or creditors, and whether to direct IRA monies (which must be distributed over 10 years since the passing of the Secure Act) differently than after-tax assets depending on the tax bracket of the children or whether there are any special needs considerations. If there is real estate involved there are often emotional attachments to consider as well as the flow of income if it is a rental property. If there is a family business involved, there are issues of succession, liquidity/income replacement (since many business owners’ net worth is concentrated in their business) and parity if children own or are to inherit unequal shares.
If a Trustee is to be named, who should that be and/or would an institutional Trustee be more appropriate for one or all the children depending on the circumstances? Should there be a Trust Protector? What role does the Trust Protector play and who might be named in this capacity?
These are just a few of the many issues to be addressed and there are typically no easy answers. Clients need time to seek counsel, learn, absorb, discuss, and vacillate before coming to conclusions they feel good about.
If you have accumulated wealth of this magnitude, you have most likely worked very hard to get to this point. If there are strategies that will help your family and the charities you care about while also reducing the assets subject to the 40% estate tax, why not explore them now? Even if you don’t proceed, you will sleep better knowing you did the appropriate due diligence. But don’t delay – be proactive and consult with your Trusted professionals (financial advisors, CPAs, estate attorneys) sooner rather than later. If you wait until the last minute, you may not be able to accomplish the best possible outcome for your situation.
Here are some steps to consider now:
1. Evaluate Your Estate Planning Documents. This is a good idea to do periodically anyway but, given the pending changes, is even more important. Make sure all yourdocuments reflect your current wishes and are set up to take full advantage of the tax laws as they currently exist. These documents would include your wills, trusts, powers of attorney, and any beneficiary designations on all your IRA and other retirement accounts such as a 401(k), accounts, annuities, and life insurance policies. Unless directed to do so, beneficiary-designated accounts do NOT have the same dispositive provisions as your will/trusts.
2. Use the Higher Estate & Gift Tax Exemptions Before They Expire. Before the exemptions are cut in half, consider ways in which you can utilize them now by making large gifts and/or creating Irrevocable Trusts to transfer wealth to the next generation. If you gift more than the $7 million per person sunset amount (up to the $13.6 million existing exemption), all of that excess above the $7 million will be savings you will not experience once TCJA expires. For example, if one partner gifts the full $13.6 million exemption, that is $6.6 million above the $7 million exemption post-TCJA expiration and a whopping $2.6 million of tax savings (at the 40% rate). If you do this for both partners, the savings is double at over $5 million.
3. Establish or Update Trusts. When evaluating your estate, think about how a Trust could be a beneficial tool providing for asset protection, tax savings, and control of how assets are managed and distributed. An example might be creating a Spousal Lifetime Access Trust (SLAT) where one spouse makes a gift of assets into the trust for the benefit of the other spouse as well as for other remainder beneficiaries. This transfer keeps assets in reach for income and principal distributions as needed but qualifies as part of the estate tax exemption and the assets transferred would not be subject to a future gift or estate tax.
4. Review Your Charitable Gifting Strategies. There are ways to donate to your favorite causes that can save you tax dollars such as Qualified Charitable Distributions (QCDs) from your IRA accounts (if you are over the RMD age). You can also establish a Donor Advised Fund (DAF) and/or or a Charitable Remainder Trust to which you can donate appreciated assets. This saves both estate taxes and avoids capital gains tax on the appreciated assets.
5. Consult with Professional Advisors. Estate planning can be complex. To ensure you position yourself to achieve your desired outcome, it is advisable to work with professionals to help you develop and implement your Estate Plan. Be sure to reach out to your team of financial advisors, CPAs, and estate attorneys to help you create the best strategies for you.
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This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.