n 2017, the Tax Cuts and Jobs Act (TCJA) significantly increased the federal estate and gift tax exemption, allowing individuals to pass up to $11.18 million (adjusted for inflation) to heirs tax-free. As of 2024, this exemption has risen to approximately $13.61 million per individual or $27.22 million per married couple. However, unless Congress takes action, this generous exemption is set to expire on December 31, 2025, reverting to pre-TCJA levels of approximately $5 million per individual, adjusted for inflation.

Implications of the Sunset

The reduction in the estate tax exemption will have significant consequences for high-net-worth individuals and families who have not yet taken steps to mitigate estate tax liability. Here's what you need to consider:

1. Increased Estate Tax Exposure – If the exemption drops to an estimated $6–7 million in 2026, estates exceeding that amount will be subject to the federal estate tax, which can reach as high as 40%.

2. Limited Time for Strategic Gifting – The IRS has clarified that lifetime gifts made under the current exemption limits will not be “clawed back” when the exemption drops. This means individuals with sizable estates may want to make large gifts before the sunset to take advantage of the current exemption levels.

3. Potential Legislative Uncertainty – While Congress may choose to extend or modify the exemption amount, there is no guarantee. Estate plans should be structured with flexibility in mind.

4. State-Level Considerations – While California does not have a state-level estate tax, some beneficiaries who move to other states may be subject to additional taxation. Coordination with state tax advisors is crucial.

Estate Planning Strategies Before 2026

To prepare for the sunset of the $13 million exemption, individuals and families should consider the following strategies:

• Lifetime Gifting – Use the current exemption to gift assets outright or transfer them to irrevocable trusts such as Spousal Lifetime Access Trusts (SLATs) or Intentionally Defective Grantor Trusts (IDGTs).

• Grantor Retained Annuity Trusts (GRATs) – These allow assets to appreciate outside of the taxable estate while minimizing gift tax exposure.

• Charitable Giving – Contributions to charitable remainder trusts (CRTs) or donor-advised funds (DAFs) can help reduce taxable estates.

• Valuation Discounts – Transferring business interests or fractional real estate interests to family members may allow for valuation discounts, reducing taxable value.

• Dynastic Trusts – These can shield assets from estate taxes for multiple generations by leveraging the current exemption.

Final Thoughts

 The window to take advantage of the $13 million estate tax exclusion (27 million for couples) is closing fast.  Unless Congress takes action, this generous exemption is set to expire on December 31, 2025, reverting to pre-TCJA levels of approximately $5 million per individual, adjusted for inflation. I do believe that Congress will eventually take action on this, but that is not guaranteed. I will keep my audience posted on any new developments regarding this legislation.

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