The Federal Gift and Estate Tax Exemption: Preparing for Changes in 2026

In 2018, the lifetime gift and estate tax exemption increased dramatically, thanks to the passage of the Tax Cuts and Jobs Act (TCJA) of 2017. While that was good news for high-net-worth individuals at the time, it came with a catch—that higher limit had an expiration date attached to it.

Now, in 2025, we’re coming up on that deadline fast. This does not mean that anyone who is still around to ring in the New Year on December 31^st is out of luck. However, it does mean that the window of opportunity to minimize taxation on your estate by using creative gifting strategies that take advantage of the generous exemption that is still in effect is shrinking.

How the TCJA Changed the Estate Tax Exemption

In 2017, the federal gift and estate tax exemption was $5.49 million for an individual. The TCJA doubled that amount to $11.18 million for an individual in 2018 and has been adjusted for inflation every year since. The 2025 exemption has risen to $13.99 million. Unfortunately, when the law was passed, Congress made certain provisions affecting both individuals and businesses temporary to limit its 10-year revenue cost and comply with Senate rules placing limitations on increases to the federal deficit, including this higher exemption limit.

As the law stands now, after December 31, 2025, the gift and estate tax exemption will reset to $5 million for an individual, adjusted for inflation going back to 2018. This amount is anticipated to be around $7 million considering the inflationary adjustments. Given that Congress would need to pass a new law to retain the higher threshold, those whose estates exceed that $7 million limit are advised to explore their options for removing or restructuring assets before the threshold change.

Why Time Is of the Essence in Taking Advantage of the Gift Tax Exemption

The “sunset” clause affecting the gift and estate tax exemption raised questions nearly as soon as the TCJA was passed. Would taxpayers be penalized somehow if they made a gift under the higher exemption but then died in a year when that exemption had decreased? The Internal Revenue Service (IRS) addressed those worries in late 2019, when they released regulations that clarified that completed gifts made between 2018 and 2025 would have the benefit of the higher exemption even if the individual making them passed away in a year when the exemption was lower than when the gift was made.

Thus, taxpayers still have gifting and estate planning opportunities using the higher exemption if they act before the end of the year. Planning has to start now, though. Determining the right strategy and, if necessary, getting a qualified appraisal from the IRS on certain assets that require it, can take a considerable amount of time.

Wait and See vs. Acting Now

Current leadership in both the White House and Congress are in favor of continuing or making permanent the provisions of the TCJA, but doing so requires new legislation. It is not clear at this point how quickly or whether such legislation will ultimately be passed, given that the majority in both the House and the Senate is very narrow.

If Congress does nothing, taxpayers who die after December 31, 2025, with a federally taxable estate and who did not make gifts in excess of $7 million before the higher exemption expired will have lost their chance to remove assets from their estate and reduce their estate tax bill. That could end up being a significant for your beneficiaries, depending on the size of your estate.

Taxpayers who expect to exceed the lower threshold and therefore have assets exposed to the 40% estate tax should consult an experienced estate planning attorney now to explore their options for making gifts that leverage the higher exemption before the end of 2025. For example, certain types of irrevocable trusts can allow you to move assets out of your taxable estate, provide asset protection to named beneficiaries, and still retain indirect access to those assets. What strategy may be appropriate for your situation will be highly individual, which is why is it is imperative to seek advice from a legal professional who is familiar with your circumstances and your estate planning goals.

Long term estate tax planning also has other benefits that make it worthwhile to plan despite a potential change in the estate tax rules, including asset protection and safeguarding assets and income from the next generation’s unfettered access before they are mature enough to manage them prudently.

Estate Tax Planning for High-Net-Worth Individuals

People who have amassed significant wealth over a lifetime of hard work and prudent investment need advanced estate planning to avoid sacrificing unnecessary amounts to estate taxes. The experienced attorneys at NM Law have the expertise you need to safeguard your legacy for your loved ones. If you’re worried about how changes to the lifetime gift and estate exclusion will affect your estate, contact us here today to schedule your consultation.