Time’s (Almost) Up! Are You Ready for the Estate and Gift Tax Exemption “Sunset”?

Twilight is approaching on the federal gift and estate tax landscape, which will soon see significant changes—making this an opportune time for high-net-worth individuals to review their estate plans. By taking action before the “sunset” on December 31, 2025, you (or your affluent clients) may be able to transfer substantial assets tax-free, potentially saving millions in future estate taxes.

Here’s what you need to know about this waning tax opportunity, including the sunset’s impact on various wealth levels and some valuable tax-saving strategies—before it’s too late.

Understanding the Looming Sunset

The Tax Cuts and Jobs Act of 2017 dramatically increased the federal estate and gift tax exemption, bringing it to $13.61 million per individual, or $27.22 million for married couples, in 2024. Individuals can transfer assets up to this amount, either during their lifetime or at death, without incurring federal gift or estate taxes. In addition to the lifetime exemption, individuals can make annual, tax-free gifts of up to $18,000 per recipient in 2024.

But this increased exemption is set to expire at the end of 2025, reverting to pre-2017 levels (adjusted for inflation). So, unless Congress takes action to extend the current exemption levels—or make them permanent—estimates suggest the limit could drop to approximately $7 million per person in 2026. How much of an impact this has on your financial future depends largely on your current wealth level:

• Under $7 million. Estates in this range are unlikely to be significantly impacted by the sunset.
• $7 million to $50 million. This group faces the most challenging decisions, as large gifts could impact lifestyle but may provide sizable tax savings.
• Over $50 million. Taking advantage of the increased exemption before the sunset typically makes sense for these estates.

Last Call to Develop a Tax-Saving Strategy

Given the potential for a massive reduction in the exemption, individuals with substantial estates should consider taking advantage of the current higher limits by using one or more of the following planning tools:

1. Outright lifetime gifts. Making direct transfers to beneficiaries can be an effective way to employ the higher exemption.
2. Spousal lifetime access trusts (SLATs). If you’re married, these trusts allow you to transfer assets while maintaining some access to the funds.
3. Irrevocable gift trusts. If you’re concerned about making outright gifts, irrevocable trusts can provide more control over asset distribution.
4. Credit shelter trusts. Also known as “bypass trusts,” these can also help maximize exemptions for married couples.

Next Steps Before Nightfall

By acting now, you may be able to reduce future estate taxes while ensuring your legacy is preserved for future generations. Start by taking these four steps:

1. Review your current estate plan to ensure it aligns with your goals and the changing tax landscape.
2. Consider making lifetime gifts to utilize the higher exemption before it potentially decreases.
3. Explore trust strategies that can provide both tax benefits and flexibility for your unique situation.
4. Consult with estate planning professionals to develop a tailored strategy that balances tax efficiency with your personal financial needs and goals.

Experienced Support at a Critical Moment

Although the impending sunset naturally raises concerns, an anticipated reduction in estate and gift tax exemption also presents a significant planning opportunity for wealthy individuals and families. However, estate planning is complex and highly individual, so it’s crucial to work with qualified professionals to develop a strategy tailored to your specific circumstances.

As the 2025 deadline approaches, demand for valuation professionals is expected to rise as individuals and businesses seek to complete valuations, appraisals, and estate transfers. By acting early, you’ll enjoy greater flexibility in your options and easier access to expert advisors.

At PCE, our experienced team is prepared to support you with trusted guidance during this critical time, empowering you to navigate this process smoothly.