The most notable change as the TCJA sunsets will be the reduction of the estate and gift tax exemption. Under the current TCJA rules, the estate and gift tax exemption is set at $12.92 million per individual for 2023, effectively doubling the pre-TCJA exemption amount of $5.49 million per individual. This increased exemption allows individuals to transfer more wealth without incurring federal estate or gift taxes.

However, beginning in 2026, these exemption amounts are set to revert to pre-2018 levels, adjusted for inflation. This means the exemption could drop to approximately $6 million per individual (around $12 million for married couples), which could significantly impact estate planning strategies for high-net-worth individuals and families.

According to recent articles from Moss Adams, Ascent, and Meaden & Moore, the sunset of the TCJA provisions will have several key implications for estate planning:

1. Reduced Exemption Amounts: With the estate and gift tax exemption set to decrease in 2026, individuals with estates exceeding the lower exemption limits may face higher estate taxes. This change could affect many estates that are currently below the exemption threshold but will exceed it once the limits revert.
2. Potential Increase in Estate Taxes: As estate sizes grow over time due to appreciation of assets, more estates could be subject to federal estate taxes after the TCJA sunset. This change emphasizes the importance of early and proactive estate planning to minimize future tax liabilities.
3. Increased Importance of Gifting Strategies: With the potential reduction in the exemption amount, now may be a good time for individuals to consider gifting strategies. Making gifts under the current higher exemption limits can help reduce the size of an estate and potentially avoid future estate taxes. However, it is essential to consult with a tax professional to understand the implications of such strategies fully.
4. State Estate Taxes: It’s also important to remember that some states have their own estate or inheritance taxes with exemption amounts lower than the federal limits. The sunset of the TCJA could make state estate taxes a more significant concern for individuals with substantial estates, particularly in states with lower exemption amounts.

With these changes on the horizon, now is the time to review and potentially adjust your estate plan. Here are a few steps to consider:

• Review Your Estate Plan: Take a comprehensive look at your current estate plan to understand how the changes could impact you. If your estate is close to or exceeds the anticipated lower exemption thresholds, now might be the time to make adjustments.
• Explore Gifting Opportunities: Consider making use of the higher exemption amounts before they expire. Gifting assets now can reduce the size of your taxable estate and take advantage of the current higher exemption limits.
• Consult a Tax Professional: Estate planning is complex, and the implications of the TCJA sunset will vary depending on your specific situation. Consulting with a tax professional can help you develop a strategy that aligns with your financial goals and minimizes potential tax liabilities.

The expiration of the Tax Cuts and Jobs Act provisions in 2026 presents both challenges and opportunities for estate planning. By understanding the potential tax implications and taking proactive steps now, you can better prepare for these changes and protect your financial legacy.

If you have questions about how these changes could impact your estate plan, don’t hesitate to reach out to our team. We’re here to help you navigate the complexities of tax planning and ensure your financial future is secure.