Estate Planning in Light of the TCJA Sunset: Why Acting Now Could Save Your Family Millions
By Katie Clemm, Estate Planning Attorney at Clemm and Associates, LLC
The cost of waiting could be millions.
As we approach the sunset of the Tax Cuts and Jobs Act (TCJA) in 2026, I’m reaching out to my clients and readers to highlight a crucial opportunity that is disappearing soon. The TCJA’s temporary increase in the federal estate tax exemption has allowed individuals and families to pass significant wealth to their heirs without facing estate tax liabilities. But in 2026, this exemption will be cut nearly in half, potentially exposing your estate to considerable tax burdens. As an estate planning attorney at Clemm and Associates, I’m here to help you make the most of the current laws so you can preserve your wealth for future generations.
What is the Tax Cuts and Jobs Act (TCJA)?
The TCJA, enacted in 2017, introduced sweeping changes to the federal tax system, affecting both individuals and businesses. For high-net-worth individuals, one of the most important changes was the temporary increase in the estate tax exemption, which now stands at $13.61 million for individuals or $27.22 million for married couples. This provision allows individuals to pass on a substantial portion of their estate to heirs tax-free. But, as a temporary measure, this exemption is set to “sunset” in 2026, meaning it will revert to pre-2018 levels—about $5 million per individual, adjusted for inflation.
When Will the TCJA Sunset?
The TCJA’s provisions, including the heightened estate tax exemption, are scheduled to sunset on December 31, 2025. If Congress does not act to extend these provisions, the estate tax exemption will automatically revert in 2026, slashing it by nearly half. This upcoming change will drastically affect families with large estates, exposing them to potential federal estate taxes of up to 40% on assets exceeding the new exemption limits.
What is the Federal Estate Tax Exemption?
The federal estate tax exemption is the amount an individual can pass to their heirs without triggering federal estate taxes. Under the current law, each individual has an exemption amount of $13.61 million (or $27.22 million for a married couple in 2024). This exemption is set to revert to roughly $5 million per person (indexed for inflation) in 2026, significantly lowering the amount that can be transferred tax-free.
The estate tax is assessed at a rate of up to 40% on assets that exceed this exemption. Because of this, effective estate planning is crucial for high-net-worth individuals to preserve as much of their estate as possible for future generations.
Example: How the Estate Tax Exemption Impacts a Married Couple with $30 Million
Let’s consider a married couple, the Robinsons, who have a combined estate worth $30 million. Here’s how their estate tax exposure changes under the current exemption versus the post-2026 exemption:
Current Exemption (2024): With a combined exemption of $27.22 million, the Robinsons’ estate would only be taxed on the remaining $2.78 million ($30 million - $27.22 million). At a 40% tax rate, their estate tax liability would be about $1.11 million.
Post-2026 Exemption: If the TCJA sunsets as expected, the combined exemption will drop to roughly $10 million (assuming $5 million per spouse, adjusted for inflation). With only $10 million shielded from taxes, the Robinsons’ estate would be taxed on $20 million ($30 million - $10 million). This would result in a substantial estate tax bill of approximately $8 million at the 40% tax rate.
Without strategic planning, the Robinsons’ heirs would face a much larger tax burden after the exemption reverts, demonstrating the importance of taking advantage of the current, higher exemption before it’s reduced in 2026.
Keep in mind, this example only shows what would happen with Federal taxes. You may live in a state that has an inheritance tax on top of this liability.
In Action
How would this look in a real life example? These examples are for illustrative purposes only.
Example 1: Utilizing the Estate Tax Exemption with a Strategic Trust
Consider a couple, the Thompsons, who have $27 million in assets and concerns about estate taxes. Recognizing the benefit of the elevated exemption, they both established an irrevocable trust in 2024 and funded it with $13.61 million, utilizing the full exemption for each spouse. By locking in this higher exemption, the Thompsons have protected these assets from the estate tax, even when the TCJA sunsets. Their remaining estate, adjusted to account for growth, will also fall under exemption limits in 2026, ensuring their heirs receive the bulk of their inheritance without substantial estate tax liabilities. The Thompsons’ proactive approach enabled them to preserve their wealth with the strategic use of today’s temporary laws.
Example 2: Relying Solely on a Will and Facing Estate Tax Consequences
Now consider the situation of another couple, the Petersons, who also have $27 million in assets. Unfortunately, they relied solely on a will to pass their assets to their heirs and did not engage in advanced planning. When the TCJA sunsets in 2026, their estate will be valued at over $17 million above the reduced exemption limits, potentially triggering federal estate taxes on that portion. This means the Petersons’ heirs could face millions in estate tax liabilities that could have been avoided with an irrevocable trust or other tax-efficient planning. The issues continue from there because if the Petersons assets are not liquid, the heirs will have to find a way to raise cash to pay the tax bill.
What Happens if I Do Nothing?
If you don’t take advantage of the current estate tax exemption, your estate could face a significantly larger tax burden starting in 2026. High-net-worth individuals who have not planned ahead may find their estates taxed at the federal level at rates as high as 40% on assets exceeding the new exemption. This impact can be devastating for families who may need to liquidate assets to cover taxes, reducing the inheritance available to future generations. The surviving family may need to sell assets at fire sale rates to cover the taxes and lose enjoyment of the legacy you meant to leave behind.
How an Attorney Can Help You Act Now
As an experienced estate planning attorney, my role is to help you prepare and protect your estate under both current and upcoming tax laws. By taking advantage of the current exemption before it sunsets, I can help you minimize your estate’s tax exposure. A proactive estate plan, often involving trusts and strategic gifting, can be structured now to maximize the current tax advantages and shield your estate from higher taxes in the future.
Protecting Your Wealth Starts Today
With only a few months remaining before the TCJA sunsets, now is the time to assess your estate plan and explore options to protect your legacy. At Clemm and Associates, we specialize in crafting customized estate plans that maximize tax advantages, helping clients make the most of the current exemption before it disappears. By setting up a strategic trust, such as an irrevocable or spousal lifetime access trust, or leveraging other gifting strategies, we can help safeguard your wealth from the impending estate tax changes.
Ready to Plan? Contact Clemm and Associates Today
Don’t wait until it’s too late. By acting now, you can ensure that your estate is well-prepared for the changes to come. Contact Clemm and Associates to schedule a consultation, and let’s create an estate plan that protects your family’s financial future. Together, we can make the most of today’s opportunities before they sunset.