Passed in 2017, the Tax Cuts and Jobs Act (TCJA) made several massive changes to tax laws that were intended to provide millions of Americans with significant tax savings. One way the TCJA did this was by doubling the lifetime estate and gift tax exemption from $5.6 million to $11.18 million for individuals, indexed for inflation after 2018. For 2024, the indexed exemption rose to $13.61 million for individuals and $27.22 million for married couples.

However, the TCJA also came with a ticking clock: Barring congressional action, the legislation is set to sunset at the end of 2025, and many of its tax-saving provisions will revert to their 2017 status. This means that as of this writing, the federal estate and gift tax exemption is expected to return to an estimated $7 million ($14 million for married couples) in 2026, effectively reducing the current limit by half.

While we’ve known this day was coming since the TCJA passed seven years ago, it’s time for high-net-worth individuals and families to begin preparing for this change. Below is a breakdown of four categories of individuals and families based on net worth and the steps each group can consider taking before the TCJA sunsets on December 31, 2025.

If you fall into any of these categories, reach out to a financial advisor to discuss your situation.

1. Estate-Tax Eligible Today

• Individual Estate Value: $13.6 million or greater
• Married Couple Estate Value: $27.2 million or greater

If your estate is valued at or greater than the current federal estate tax exemption (listed above), then you should be focused on a tax-efficient estate plan right now that utilizes the current high exemption limits while they last. If you don’t take advantage of some of these strategies now, you could face a large tax burden when the TCJA sunsets and the estate and gift tax exemption is cut in half.

You should consider implementing estate planning strategies that coordinate gifting and an estate tax freeze (transferring assets to beneficiaries without utilizing the estate or gift exemption in order to keep appreciation out of your estate) to help save on federal estate and gift taxes. Below are a few strategies you can explore:

Spousal Lifetime Access Trusts (SLATs)

A SLAT is an irrevocable trust set up by one spouse for the other during his or her lifetime, which is a stark difference between SLATs and other types of marital trusts that are only established upon death. While the donor spouse makes an irrevocable gift to the trust and gives up any right to the funds, the beneficiary spouse, and potentially other beneficiaries such as children and grandchildren, are provided access to the gifted funds right away.

The major benefit of a SLAT is that it enables you to take advantage of the large estate tax exemption during your lifetime. This is particularly important for estates worth more than the current exemption that are subject to federal estate tax. If you don’t use the current high exemption rate before the end of 2025, more of your estate will be subject to estate taxes–which is not ideal for you.

Annual Lifetime Gifts

An annual lifetime gifting strategy is another great way to reduce the size of your estate and gift funds while you’re still living. The current gift tax exemption for 2024 is $18,000, which means you can gift up to that amount to any number of people, and no taxes are required to be paid on the gift. If you’re married, the two of you can give $36,000 to each recipient. This is a great option if your taxable estate is currently over the federal estate tax exemption and you plan on gifting assets to family, friends, etc. at your time of passing. By using an annual gifting strategy, you can gift those assets now (which you were planning on doing anyway) and help bring down the size of your estate.

Note: It’s important to make sure you take the generation-skipping transfer tax (GSTT) into consideration when creating these estate and gifting strategies. The GSTT is a 40% tax on all gifts or inheritance exceeding $13.61 million (in the year 2024) made to grandchildren or younger generations. If a recipient isn’t in your family line, a generation skip would apply to persons 37 ½ years younger than the person making the gift.

2. Estate Sunset Affected

• Individual Estate Value: ~$7 million – $13 million
• Married Couple Estate Value: ~$14 million – $27 million

If you fall within this category, you’re not currently affected by federal estate taxes, but you will become subject to the federal estate tax as of January 1, 2026. If this describes you, you have a growing net worth that you can protect from this changing tax law, so you should consider basic estate planning strategies.

In addition to the strategies mentioned above, some other tactics may include the following:

Gifting Assets Expected to Appreciate Significantly

Consider offloading some assets that you believe are going to appreciate significantly. While this might at first seem counterintuitive, the idea is that you can make a tax-free gift now while also removing that asset from your estate. Then, when the asset does appreciate, you can ensure that you don’t go over the edge of the federal estate tax exemption. However, you will want to be aware that in getting these assets out of your estate, you are also foregoing a step-up in cost basis on them upon your death. While it’s likely the estate tax savings will outweigh the income taxes the gift recipients will owe, you will want to do an analysis as to what tax will be worse: a 40% federal estate tax (plus possible state estate taxes) versus the combined federal and state income taxes on the gain.

Gifts to Charity

Gifts to charity are always tax-free, so, similar to the annual gifting strategy, a great way to reduce your estate and mitigate any potential estate taxes is to gift assets to charity. Not only can this help you manage paying estate taxes, but you get the added benefit of supporting the causes that are near and dear to your heart.

Various Other Trusts

Because a properly structured irrevocable trust causes you to relinquish control of the assets you put within it, those assets do not count towards your estate tax exemption. This makes trusts a great option for those looking to reduce the size of their taxable estate.

Within the larger umbrella of trusts lies a subset called marital trusts, and some of these can be useful tools for those wanting to make gifts to their spouse and other beneficiaries. A Trusts and B Trusts are fairly standard types of trusts that transfer assets to your spouse and/or children at the time of your passing, but another type of marital trust that enables you to keep some amount of control of your assets is called a Qualified Terminable Interest Property (QTIP) trust. While QTIP trust assets and all appreciation of the assets between the first and second spouse’s death are included in the surviving spouse’s estate and will be taxed at that spouse’s death, they are still good tools to use to manage estate taxes upon the first spouse’s death if that spouse’s individual estate exceeds the exemption.

A QTIP Trust is a specialized estate planning tool designed to provide for a surviving spouse while also preserving assets for other beneficiaries. In essence, a QTIP Trust gives your spouse a lifetime interest in the trust’s assets. Upon their passing, however, the remaining assets will be distributed according to your wishes, which are determined when you first create the trust. This differs greatly from other trusts that force you to relinquish all control of assets that are placed into the trust. But with a QTIP Trust, you still get to call the shots—even after you pass.

Conversely, a “B” Trust, also known as a Family Trust, Bypass Trust, or Credit Shelter Trust, utilizes the first spouse’s estate exemption amount at death. The surviving spouse and possibly children and grandchildren may access the funds under the trust terms, but because the deceased spouse’s exemption was used to fund the trust it remains out of the surviving spouse’s taxable estate. This then ensures that all appreciation associated with the B Trust assets also happens outside the survivor’s estate, helping to reduce total estate taxes.

3. High-Income Families Currently Under the Threshold

• Individuals with Earnings $300,000+/yr. & Investable Assets of $1 million+
• Married Couples with Earnings $500,000+/yr. & Investable Assets of $2 million+

If you fall into this category, you don’t need to worry about federal estate taxes now, but you may want to understand state and/or local laws and start some basic estate planning. If you are in this group, you can take more of a “wait and see” approach when it comes to planning for federal estate taxes but may still need to take action to help reduce or eliminate potential state estate or inheritance taxes.

However, you may decide you still want to consider some of the aforementioned strategies, especially annual lifetime gifts and gifts to charity.

4. The Unknowns

• Business or real estate owners who don’t know the extent of their net worth

The final category is called “the Unknowns.” These individuals could fall into any of the previous three categories, but without a full evaluation of their business, real estate, or other assets/interests, it’s impossible to say what action is needed and when. If this sounds like you, then it’s imperative that you immediately begin the process of determining the value of your complete estate before next steps can be recommended.

Start the Conversation Now

Some may be more prepared than others for the reduction of the federal estate tax exemption, so use this guide to help you determine your next steps. While there’s still time before the TCJA sunsets, it’s never too early to start making alternative plans and engaging estate attorneys before they become too busy to take on new clients. And in many cases, like those looking to establish trusts, the sooner you get the ball rolling, the better, as these can take upwards of 18 months to set up.

While 2026 may seem far away, inaction could result in you and your family missing out on these time-sensitive estate planning opportunities. If you would like to learn more about how Wealth Enhancement Group can help prepare you for the sunsetting TCJA, please reach out to an advisor today.

This information is not intended to provide individualized tax or legal advice. Discuss your specific situation with a qualified tax or legal professional.