WHAT 2026 MEANS FOR GIFTING AND THE FEDERAL ESTATE TAX EXEMPTION

The Tax Cuts and Jobs Act of 2017 doubled the amount a person can transfer tax-free to others from $5 million in 2017 to $10 million in 2018 plus an added amount indexed for inflation. The federal gift and estate tax exemption in 2025 with its index for inflation will allow an individual to transfer up to $13.99 million to anyone they choose in combined lifetime gifts or transfers at death. A married couple has double the federal tax-free gifting power at $27.98 million.

What does this mean for you?

If the value of your estate is not likely to exceed $7 million by the time of your death (about $14 million for married couples with combined estates), the changes are not too much cause for concern.
For those individuals with estates between about $7 million and $14 million (and double for married couples), if the estate tax exemption is allowed to revert to 2017 levels, the value of their estate that exceeds the available gift tax exemption at the time of their death will be subject to a progressive estate tax that quickly reaches 40% of the amount in excess of the new lower exemption.

For those who already have a taxable estate (in excess of $13.99 million for an individual and $27.98 million for a married couple in 2025), the use it or lose it nature of the current exemption will have even greater financial impact. These people should give more thought to making gifts now as the type of planning involved in making these gifts in a tax-advantaged way can take several months and involve coordination among many members of your financial team. One way to prepare in an uncertain environment is to create the vehicles now, whether they be irrevocable trusts, family limited partnerships or otherwise, and fund them later when there is more certainty regarding future estate tax exemption levels.

Those watching the estate tax exemption anticipate that the new Trump administration will take action to extend the higher exemption, but success is not certain. With 53 republican seats in the senate, it is not certain that Republicans can garner the 60 votes necessary to defeat a filibuster by Democrats who are likely to oppose. On to the budget reconciliation process. Budget reconciliation might result in an extension of the higher exemption, but one that would again be required to sunset within ten years under the Byrd rule. This gives breathing room for planning if passed.

What should I consider doing?

If you are in a position to give away up to $13.99 million for an individual ($27.98 million for a married couple) it is still a good idea to consider making those gifts in 2025 in order to use it and not risk losing it if legislation extending the exemption is not forthcoming. The larger the value of your estate, the more sense it makes to consider making irrevocable gifts sooner rather than later.