Planning for the Sunset of the Tax Cuts and Jobs Act: Federal Estate, Gift, and Generation-Skipping Transfer (GST) Tax Considerations

The Tax Cuts and Jobs Act (TCJA) has been a significant piece of legislation since its enactment in 2017, but with its built-in “sunset” date of December 31, 2025 rapidly approaching, taxpayers need to start planning for the changes that will come in 2026. One of the key considerations is the impact on federal estate, gift, and generation-skipping transfer (GST) taxes.

Under the TCJA, the exemption amount for these taxes was doubled to $10 million and has since increased to $13.61 million in 2024. However, if no changes are made before the sunset date, this amount will be cut in half to about $7 million in 2026. This means that taxpayers who do not utilize their exemption before the sunset date could face a significant tax bill of approximately $2.644 million.

To avoid this result, taxpayers are encouraged to plan ahead and consider options such as creating irrevocable trusts, such as a spousal lifetime access trust (SLAT). A SLAT allows the donor’s spouse access to trust assets while also utilizing the available exemption amount.

Planning now is crucial as it involves careful consideration of gift amounts, beneficiaries, and asset allocation. By engaging with a team of advisors, taxpayers can proactively plan for the changes that will come with the sunset of the TCJA in 2026. It’s essential to start the process early to ensure that all aspects of financial planning are taken into account and to avoid any last-minute rush.

Overall, taxpayers are advised to consult with their tax preparers and attorneys to assess their full financial picture and make informed decisions before the sunset date of the TCJA in 2026. Planning ahead can help individuals maximize their available exemptions and avoid potential tax consequences.