The scheduled expiration of the Tax Cuts and Jobs Act (“TCJA”) is just around the corner, and both clients and planners are waiting to see what this next year will bring to estate tax laws. This article will discuss the current law, the changes on the horizon, and how to navigate the uncertainties surrounding the estate tax.

Current Law

Under the current law, individuals may make gifts not to exceed a certain combined value to any number of people without triggering a transfer tax obligation. Each year, this allowable gift amount increases to account for inflation.

As of 2025, each individual can make gifts with a combined value of $13,990,000 to friends, family members, charities, etc. without triggering the dreaded “Estate Tax.” In 2017, individuals were permitted to transfer only $5,490,000 tax free. Later that same year, the TCJA temporarily altered this amount. Under the TCJA, the federal tax exemption (the “Exemption Amount”) was doubled from $5,490,000 in 2017 to $11,180,000 in 2018. If the TCJA is not renewed, in 2026 the Exemption Amount is scheduled to revert to its original value, bringing the Exemption Amount back down to $5 million indexed for inflation, around $7.5 million for 2026.

The Exemption Amount can be used at any point during your lifetime or at your death and is “locked in” the year it is used (the year you make the gift or the year you pass away). Although everyone has the option to make gifts at any point during their lifetime, in the past, most individuals have arranged for these transfers to take place at their death in order to maximize the amount of tax-free money that can be passed to their loved ones. But, with the looming possibility of a significant decrease in the Exemption Amount on the horizon, locking in the 2025 Exemption Amount becomes an attractive option for many.

What We Expect

If the Exemption Amount reverts back down to $5 million indexed for inflation, a number of individuals who would not have met the Estate Tax threshold under current law would now surpass it. Since the Exemption Amount gets “locked in” the year that it is used, individuals making gifts in 2025 will be able to utilize the $13,990,000 Exemption Amount before it potentially sunsets.

While there is no way to be certain if the current administration will decide to renew the TCJA, or otherwise alter the Estate Tax landscape, we believe it is likely that the current law gets extended. Nonetheless, we do not expect DC to get this done until late Q3 or Q4.

This creates a challenge for both clients and planners. Due to the dramatic potential decrease in the Exemption Amount, planners will likely end up at capacity and be unable to take on new clients or big projects late in 2025. Further, successful gift planning and execution takes time and thoughtfulness and should not be rushed.

What You Can Do Now

Clients need to start considering adjustments to their estate plans in light of the two possible outcomes. In order to effectively prepare for the year to come, consider the following:

1. Talk with your planner about options to set the stage for late 2025 gifts. Certain planning can be done now to set you up for successful end of year gifting if it appears the Exemption Amount will go down on January 1, 2026. What can your planner do for you now?

i.  Create irrevocable trusts that are ready to be funded on short notice

ii. Form and fund new entities that can be used for gifting

iii. Obtain necessary valuations/appraisals of assets for gifting

iv. Prepare (but not execute) documents you will need in order to make these gifts

2. Talk with your financial advisor about potential assets for a gift and consider whether any planning or reorganization needs to be done now to prepare for transferring those assets. What can you do to prepare?

i. Make a list of all the assets you currently own

ii. Analyze asset cash flow and potential for appreciation

iii. Think about who you would like to ultimately receive these assets

3. Make sure you keep up with the latest developments! Stay up to date by visiting the IRS website, following the news, and setting reminders near the end of the year to check in with your planner and financial advisor about your options.