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Tax law Section Chair : ChristopherDingman – Johnson , Pope , Bokor , Ruppel asaresultofthe2017 taxCutsandJobact , beginningon January1 , 2026 , thefederalestatetax exemptionwillexpire .
As a result of the 2017 Tax Cuts and Job Act ( TCJA ), beginning on January 1 , 2026 , the federal estate tax exemption will expire ( the “ Sunset ”). 1 The current exclusion amount is $ 13.61 million for individuals ( the “ Exclusion ”). 2 This amount will go down to $ 5.49 million as adjusted for inflation . 3 The effect of the Sunset is expensive , as the maximum estate tax rate is 40 %. This equates to $ 400,000 of tax for every $ 1,000,000 of an estate value over the Exclusion amount . 4
For example , a married individual who dies with an estate that is valued at $ 10 million without an estate plan before the Sunset , owes no tax . This is because the total value of the individual ’ s estate falls under the current Exclusion amount . For purposes of this example , let ’ s assume that the Exclusion after the Sunset is $ 6 million . If the married individual dies without an estate plan after the Sunset , $ 4 million will be taxable at a rate of 40 %. 5 After the Sunset , the married individual will be responsible for
$ 1,600,000 worth of tax on the total value of the estate that is not excluded under the Exclusion .
Given how the Exclusion amount has been increasing since 2018 , most taxpayers did not need estate plans to account for such harsh tax consequences . These taxpayers may now need to begin planning for the Sunset , which could include gifting away assets . In doing so , it is important to note that taxpayers will not lose the benefit of the higher Exclusion amount in effect before the Sunset for gifts made now . 6 For instance , an individual taxpayer who gifts $ 10 million in 2024 when the Exclusion amount is $ 13.61 million , and dies in 2026 when the Exclusion amount is $ 6 million , will be permitted to use the Exclusion amount of $ 13.61 million in effect at the time the gift was made .
The Sunset of the Exclusion may be modified by Congress ; however , such a modification has not happened yet and may never happen . So , it is important not to delay the review and strategic tax and estate planning of clients with an estate value over such exclusion amounts , as estate planning attorneys know such a process takes time and involves at the very least the efforts of a client ’ s estate attorney and financial planner , the amendment of multiple documents , including wills and trusts , updates to various accounts , and preparation of instruments of transfer . n
1
H . R . 1 - 115th Congress ( 2017- 2018 ): Tax Cuts and Jobs Act , H . R .
2
26 C . F . R . 601.602 ; RP-2023-34
3
I . R . C . § 2010
4
I . R . C . § 2001 ( c )
5
I . R . C . § 2001 ( c )
6
C . F . R . § 20.2010-1 ( c )
Author : Cortney J . Harrington - James A . Schmidt , P . A .
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