Unless Congress acts, on Jan. 1, 2026, the estate, gift and generation-skipping transfer (GST) tax exemption amounts will be cut in half. A decrease in the exemption amount could result in significant additional transfer taxes for families with federally taxable estates. However, there is still ample opportunity for high-net-worth families to plan to utilize the current exemption amounts. This article will explore potential wealth transfer opportunities to capture and utilize the exemption amount before it may be lost.
In 2017, the Tax Cuts and Jobs Act (TCJA) doubled the existing estate and gift tax exemption amounts from $5.6 million per person (or $11.18 million per married couple) to $11.18 million per person (or $22.36 million per married couple), indexed for inflation annually. In 2023, the estate and gift tax exemption amount is $12.92 million per person (or $25.84 million per married couple).
The TCJA is set to expire at the end of 2025. Let’s assume that the estate and gift tax exemption amount has increased to $14 million by this time (due to adjustments for inflation). In that case, if Congress does not act, the exemption amount would decrease to about $7 million per person or $14 million per married couple. This loss in exemption amount could increase overall transfer taxes for certain families by millions of dollars.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Wise move: Explore options well before 2026
We’ve been in a similar position in prior years and have seen that congressional gridlock can make reaching an agreement on preserving or increasing the exemption extremely difficult. While it is uncertain what, if any, tax-related legislation will come out of Congress in 2024 and 2025, it may be wise to explore one’s options to use the current existing exemption well before 2026.
If you can afford to use a portion or all of your existing exemption amount before Jan. 1, 2026, the amount used now cannot later be taken away from you. It has also been confirmed that if you use more exemption during life than is available at death (due to the decrease), the IRS cannot impose estate tax on those “excess” gifts as part of the taxpayer’s taxable estate when they pass. (Please note that there are some minimal exceptions to this rule for certain types of gifts made within three years of death.)
In addition, it’s important to note that when using your exemption during your life, you use it from the “bottom up.” This means that if you have $12.92 million of exemption and you use $6 million by making a gift (leaving you with $6.92 million), if the exemption amount is then cut in half, the $6 million of exemption you have used is considered to come out of the remaining amount, not the amount that was taken away.
In the above example, if you make a $6 million gift and the exemption amount is cut in half from $14 million to $7 million, you will have only $1 million remaining for future gifts or to shield assets from taxes upon your death. Consequently, locking in the exemption amount that may be taken away requires large gifts close to or at the full exemption amount before the amount potentially drops.
Estate planning strategies for gifting
Below are some estate planning strategies for gifting to discuss with your advisers:
- Spousal lifetime access trust (SLAT). It is possible to create an irrevocable trust for your spouse, gift assets into it and use your exemption amount. While this type of trust offers great flexibility by allowing the non-gifting spouse to be a trust beneficiary of income, there are several potential issues with this trust. Divorce from your spouse or the untimely death of a spouse are two of the main pitfalls. There are additional complexities to this type of trust. It is important to go over all possible ramifications with your advisers when considering a SLAT.
- Irrevocable trusts for children/descendants. You can create an irrevocable trust or trusts for the benefit of younger generations and utilize your existing gift and GST tax exemption amount, if desired. Consider a Crummey trust or other discretionary irrevocable trusts for descendants to gift assets you anticipate will appreciate greatly. By taking advantage of transferring or gifting assets (and their future appreciation) now, you use an exemption amount you would otherwise lose after the sunset.
Don’t overlook this possible additional benefit
As an added benefit, if you live in one of the 12 states (or the District of Columbia) that has a state-level estate tax, gifting will typically reduce the amount of state estate tax owed when you pass.
If the loss of the current transfer tax exemption amounts could negatively affect your family, we recommend you speak with your wealth planning advisers and your estate planning attorney to discuss if the existing planning opportunities would be right for your individual situation.
Tracy A. Craig is a partner and chair of Seder & Chandler's Trusts and Estates Group. She focuses her practice on estate planning, estate administration, prenuptial agreements, guardianships and conservatorships, elder law and charitable giving. She works with individuals in all areas of estate and gift tax planning, from testamentary estate planning and business succession planning to sophisticated lifetime leveraged gifting techniques, such as grantor retained annuity trusts (GRATs), intentionally defective grantor trusts, family limited liability companies and qualified personal residence trusts (QPRTs). Tracy serves in various fiduciary capacities, including trustee and personal representative (formerly known as executor). She also works with clients on issues facing elders.
Emily Parker Beekman is a Wealth Planning Strategist at Corient in Boston. She works with clients and their advisors to develop and implement their estate planning, wealth transfer and charitable planning strategies. Prior to entering the wealth management field, Emily spent 10 years as a practicing trusts and estates attorney, where she assisted clients and generations of families regarding estate planning, estate and gift taxes, probate law, probate avoidance, estate and trust administration, philanthropy and specialized in estate planning for disabled persons, guardianship and conservatorship matters and long-term-care planning and other elder law matters.
Related Content
- How to Handle Estate Planning for Multigenerational Living Arrangements
- How Should Your Children Inherit? Four Scenarios Where ‘Equal’ Is Not Appropriate
- Six of the Worst Assets to Inherit
- Six of the Best Assets to Inherit
- Getting an Inheritance? Here Are Four Things to Consider
-
I'm a Financial Planner: Here's How to Invest Like the Wealthy, Even if You Don't Have MillionsPrivate market investments, once exclusive to the ultra-wealthy and institutions, have become more accessible to individual investors, thanks to regulatory changes and new investment structures.
-
Four Ways a Massive Emergency Fund Can Hurt You More Than It HelpsSaving too much could mean you're missing opportunities to put your money to work. Redirect some of that money toward paying off debt, building retirement funds, fulfilling a dream or investing in higher-growth options.
-
I'm a Financial Planner: How to Dodge a Retirement Danger You May Not Have Heard AboutTiming is everything, and sequence of returns risk can mean the difference between a retirement nest egg that's overflowing … or empty.
-
Caring for Aging Parents: An Expert Guide to Easing the Financial and Emotional StrainEarly conversations, financial planning and understanding the progression of care needs can help to mitigate stress and protect family relationships.
-
I'm a Financial Adviser: The OBBB Is a Reminder for Older People to Have a Long-Term PlanThe new tax bill presents a good opportunity for retirees to revisit tax plans, look into doing some Roth conversions and consider plans for long-term care.
-
I'm an Insurance Expert: This Is Exactly Why Your Insurance Rates Are Soaring (and What You Can Do)A dramatic rise in the frequency and cost of severe weather and wildfires means you need to prepare, prepare, prepare — no matter where you live — for higher premiums.
-
Q3 2025 Post-Mortem From an Investment Adviser: Markets Continue to Climb, Gold ShinesThe third quarter saw market gains driven by Fed rate cuts and strong earnings, despite high valuations and concerns about speculative trading and job growth. Gold and international stocks could be potential hedges.
-
Moving Abroad? You Might Need a Cross-Border Financial AdviserIf you want to live in another country long term, you could benefit from an expert's guidance. Here's how to find a good qualified adviser to help with residency requirements, documentation, financial laws and tax impacts.
