Generous estate and gift tax exemptions may end soon

Now’s the time to review your estate and gifting plans.

High-net-worth individuals and families who benefit from the historically high federal estate and gift tax exemption may soon see it reduced by about half. 

The generous estate and gift tax exemptions enacted by the Tax Cuts and Jobs Act (TCJA) of 2017 are scheduled to sunset at the end of this year. With upcoming tax law changes, now’s the time to plan moves to minimize your tax burden and support your financial goals.

What to expect

The first question when it comes to pending tax law changes is always whether the provision will actually go into effect. Unless Congress takes action, the exemption for federal estate tax will be reduced to $5 million for individuals and $10 million for couples (from $13.99 million and $27.98 million, respectively, in 2025), indexed for inflation.

While no one can predict the future, experts expect the exemptions to revert to pre-TCJA levels as planned and are advising action to take advantage of the current exemptions. Waiting until the date is upon us, may leave you with limited options.

Wealth transfer strategies

Based on your situation and goals, one or more of these strategies may allow you to take full advantage of the current exemptions, before they’re substantially reduced.

Outright gifts are usually the first tactic that comes to mind. This may mean gifting to loved ones ahead of schedule to avoid the greater tax burden later. You can also fund an irrevocable trust with your gift that designates beneficiaries and distributions based on the terms you choose. Any gifts to this trust can take advantage of the lifetime gift and estate tax exemption.

Note that the expiration of TCJA also means a reduction to the limit of cash contributions to public charities. It will be reduced from 60% to 50% of adjusted gross income (AGI), so it’s wise to speak to your advisor about your charitable giving goals during this time to determine how to make the most of your generous donations.

While gifting is certainly one option, there are other reduction strategies, payment techniques and trust options that you should consider.

A spousal lifetime access trust (SLAT) is a popular option to leverage the high exemption for asset transfer and preserve wealth for heirs. It allows one spouse to create an irrevocable trust for the benefit of the other spouse. The funding spouse contributes assets to the trust, and the non-funding spouse is the beneficiary. SLATs may also provide liquidity for estate taxes

If your gifts use up your gift and estate exemption, an irrevocable life insurance trust (ILIT) holds life insurance policies outside the insured’s estate. The trustee purchases life insurance on the grantor, with the trust as the beneficiary. ILITs avoid estate taxes on the policy proceeds, provide liquidity for estate settlement and protect the policy from creditors.

Consider your charitable giving strategy as part of your estate plan as well. A credit shelter trust (CST), also known as a bypass or family trust, allows married couples to maximize their federal estate tax law exemption. When one spouse passes away, a portion of their assets is placed into the trust. These assets, along with any appreciation, are sheltered from estate taxes upon the second spouse’s death. It allows you to maintain control over assets while providing a tax-efficient wealth transfer.

There are other trusts that can help in certain situations, including dynasty trusts, survivor standby trusts and qualified personal residence trusts. Discuss your options with your financial advisor, estate attorney and tax advisor.

Even though it’s possible that tax legislation will extend or build upon the TCJA provisions, now’s the time to review your estate plan and make decisions to limit the impact 2026 is expected to bring.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.

While we are familiar with the tax provisions of the issues presented herein, Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.