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The Estate Tax, often a critical concern in estate planning and tax law, is set for significant changes in 2026 due to the sunset provision of the Tax Cuts and Jobs Act (TCJA) of 2017. This act, which temporarily doubled the federal estate and gift tax exemption amount, is slated to revert to its pre-TCJA levels, adjusted for inflation, at the end of 2025.

In 2024, the estate and gift tax exemption is $13.61 million per individual, up from $12.92 million in 2023. This means that an individual can give away up to $13.61 million over their lifetime or at death without incurring federal estate or gift tax. For married couples, this effectively doubles the exemption to $27.22 million, allowing them to shield a total of $27.22 million from federal estate and gift taxes.

However, with the sunset provision taking effect, these amounts are expected to decrease to about $6.8 million for individuals and $13.61 million for married couples, subject to additional inflation adjustments. This change represents a significant reduction in the amount that can be passed on to heirs without incurring federal estate tax, essentially halving the current exemption amounts.

The 2026 Estate Tax changes underscore the urgency for individuals, especially high-net-worth clients, to revisit their estate planning strategies. Attorneys advising clients on estate planning should focus on several key areas in anticipation of these changes:

  • Re-evaluation of existing estate plans to ensure they remain effective under the reduced exemption amounts.
  • Consideration of lifetime gift strategies to take advantage of the higher exemption amounts before they decrease.
  • Exploration of advanced estate planning techniques, such as trusts, to minimize the estate tax burden and protect assets for future generations.

For attorneys, it’s crucial to understand these impending changes and their potential impacts on clients’ estate planning objectives. Proactive planning and strategic adjustments can help mitigate the effects of the reduced exemption amounts, ensuring clients’ estates are passed on according to their wishes while minimizing tax liabilities.