The Tax Cuts and Jobs Act (TCJA) of 2017 brought significant changes to estate tax regulations, including a higher estate tax exclusion. However, it’s crucial to be aware that the TCJA’s provisions are temporary.
On January 1, 2026, the TCJA is set to expire, potentially lowering the estate tax exclusion to levels established prior to the Act. In this blog post, supported by research and statistics, we will explore the implications of this expiration and the need for proactive estate planning to adapt to the changing landscape.
Understanding the Tax Cuts and Jobs Act
The Tax Cuts and Jobs Act, signed into law in December 2017, introduced significant revisions to the federal tax code, including changes to estate tax regulations. One key provision was the increase in the estate tax exclusion, determining the value of an estate that is exempt from federal estate taxes.
The TCJA raised the exemption to $11.18 million per individual or $22.36 million per married couple for the tax year 2018, adjusted annually for inflation. Today in 2023, the exclusion stands at $12.92 million after a series of adjustments since then.
The Expiration and Potential Consequences
It’s important to note that the TCJA’s provisions are temporary, and unless extended or modified, they are scheduled to expire on January 1, 2026. If the TCJA expires as planned, the estate tax exclusion will revert to the levels established prior to the Act, adjusted for inflation.
If 2017 when the Act was enacted, the exclusion was $5.49 million. It will be higher because of the inflation factor, but the exclusion will be less than half of what it was in 2025.
Implications and the Importance of Proactive Estate Planning
The potential expiration of the TCJA and the subsequent reduction in the estate tax exclusion can have significant implications for individuals with larger estates. If your estate value exceeds the reduced exemption, it may be subject to federal estate taxes.
This underscores the importance of proactive estate planning to adapt to the evolving tax landscape and optimize your estate for tax efficiency.
Proactive estate planning strategies can include:
- Gifting: Taking advantage of the current higher exemption, you may consider making gifts to reduce the overall size of your estate and potentially minimize estate tax liability.
- Trusts: Establishing irrevocable trusts, such as a grantor retained annuity trust (GRATs), a generation-skipping trust (GST), and qualified personal residence trust (QPRTs), can help transfer assets and minimize estate tax consequences.
- Family Limited Partnerships: Utilizing family limited partnerships or family limited liability companies (LLCs) can provide a vehicle for transferring assets and potentially reducing estate tax exposure.
Seeking Professional Guidance
Given the complexity of estate tax regulations and the potential changes ahead, consulting with an experienced estate planning attorney is essential. An attorney specializing in estate planning can guide you through the process, evaluate your unique circumstances, and develop strategies to maximize tax benefits while aligning with your overall estate planning goals.
We Are Here to Help!
Our firm can certainly help if you would like to take steps to reposition your assets with the pending estate tax reduction in mind. However, this is certainly not the only reason to put an estate plan in place sooner rather than later.
You do not have to be a multimillionaire that is exposed to the estate tax to benefit from professional guidance when you are devising a plan. There are different ways to proceed, and the right choice will depend on the circumstances.
Personalized attention is the key to a properly prepared estate plan, and is exactly what you will receive when you collaborate with our firm.
You can schedule a consultation at our Phoenix, AZ estate planning office right now if you call us at 888-222-1328, and you can use our contact form to send us a message.