Where the Exemption Stands Right Now

Under the TCJA, the federal estate and gift tax exemption jumped from about $5.49 million per person in 2017 to $11.18 million in 2018. With inflation adjustments, it reached $13.61 million per person for 2024 and is projected at roughly $13.99 million for 2025.

For a married couple using portability, that’s nearly $28 million sheltered from the 40% federal estate tax. That number kept a lot of wealthy families out of estate tax territory entirely.

But the TCJA’s individual provisions — including this doubled exemption — are scheduled to sunset on December 31, 2025. Unless Congress acts, the exemption reverts to its pre-TCJA level, adjusted for inflation.

What Happens on January 1, 2026

When the TCJA sunsets, the exemption drops to approximately $7 million per person (the exact figure depends on 2026 inflation adjustments, but most projections land between $6.8M and $7.2M). For married couples, the combined exemption falls from ~$28 million to ~$14 million.

The tax rate on amounts above the exemption stays at 40%, per IRC Section 2001(c). So an individual with a $12 million estate who dies in 2026 would face a taxable estate of roughly $5 million, generating a federal estate tax bill of about $2 million. In 2025, that same estate would owe nothing.

That’s a $2 million difference based purely on timing. For people with estates between $7 million and $14 million, the sunset creates a real exposure that didn’t exist under the TCJA.

Congress Could Extend It — But Don’t Count on It

There’s been ongoing discussion about extending the higher exemption. Some proposals would make the TCJA levels permanent. Others would set the exemption somewhere between the old and new levels. A few proposals would lower it even further.

Here’s the problem with waiting: even if an extension passes, it might not happen until late 2025 or early 2026. Legislative timelines are unpredictable. And if the exemption does drop, any planning you should have done in 2024 or 2025 can’t be done retroactively. The gifts you didn’t make, the trusts you didn’t fund — those opportunities are gone.

The smart approach is to plan as if the sunset will happen, and treat any extension as a bonus. We’ll update our 2026 tax brackets guide as legislation develops.

The Anti-Clawback Rule: Why Gifting Now Is Safe

One concern that kept people from acting: if you make a $13 million gift in 2025 using the full exemption, and then the exemption drops to $7 million in 2026, does the IRS come back and tax the difference when you die?

No. The IRS issued final regulations (T.D. 9884) confirming the anti-clawback rule. If you use the higher exemption while it’s available, the IRS won’t recapture the excess when the exemption drops. Your estate gets the benefit of the higher exemption that was in effect when the gift was made.

This is a big deal. It means there’s no downside to making large gifts now. If the exemption stays high, you haven’t lost anything. If it drops, you’ve locked in the higher exemption permanently. That’s a rare case where the tax code actually rewards acting early. Read more in our gift tax exclusion 2026 guide.

Portability Between Spouses

Portability lets a surviving spouse use their deceased spouse’s unused estate tax exemption, under IRC Section 2010(c)(4). If one spouse dies in 2025 with a $5 million estate and a $14 million exemption, the remaining $9 million of unused exemption can transfer to the surviving spouse via a timely filed estate tax return (Form 706).

After the sunset, portability still works — but the amount available to port is based on the exemption in effect at the date of the first spouse’s death. If the first spouse dies in 2025, the surviving spouse can port the unused portion of the ~$14 million exemption. If the first spouse dies in 2026, it’s based on ~$7 million.

For married couples, the timing of the first death relative to the sunset date matters more than most people realize. This is one reason estate planning attorneys are pushing clients to review their plans now, not after the exemption drops.

Planning Strategies Before the Sunset

Accelerated Gifting

The most direct strategy: make gifts now while the exemption is high. You can gift up to the full exemption amount ($13.61M in 2024) to irrevocable trusts or directly to beneficiaries. Thanks to the anti-clawback rule, this permanently removes those assets — and all future appreciation — from your taxable estate.

For married couples, each spouse has their own exemption. A couple can gift roughly $27 million combined without triggering gift tax. That said, you shouldn’t gift assets you need to live on. A good estate plan doesn’t make you cash-poor.

Grantor Retained Annuity Trusts (GRATs)

A GRAT lets you transfer appreciating assets to a trust while retaining an annuity stream. If the assets outperform the IRS’s assumed rate of return (the Section 7520 rate), the excess growth passes to beneficiaries gift-tax-free. GRATs work especially well with concentrated stock positions or assets expected to appreciate significantly.

Spousal Lifetime Access Trusts (SLATs)

A SLAT is an irrevocable trust funded by one spouse for the benefit of the other. This lets you move assets out of your estate while your spouse retains indirect access to the trust funds. It’s a way to use your exemption without completely giving up control of the money.

The catch: if both spouses create SLATs, the trusts can’t mirror each other too closely or the IRS may treat them as reciprocal trusts, unwinding the tax benefit. Work with an attorney who understands this doctrine.

Irrevocable Life Insurance Trusts (ILITs)

Life insurance proceeds are income tax-free under IRC Section 101, but they’re included in your taxable estate if you own the policy. An ILIT owns the policy instead, keeping the death benefit out of your estate entirely. For someone with a $15 million estate and a $3 million life insurance policy, that’s a $1.2 million estate tax savings at the 40% rate.

ILITs work best when funded well before the insured’s death — there’s a three-year lookback rule under IRC Section 2035 if you transfer an existing policy.

New York’s Estate Tax: The Cliff You Don’t Want to Fall Off

New York has its own estate tax with a much lower exemption: $6.94 million (2024). That’s not the problem. The problem is the cliff.

If your New York taxable estate exceeds 105% of the exemption amount — about $7.29 million — you lose the exemption entirely and pay tax on the entire estate starting from dollar one. The top NY rate is 16%.

So an estate of $6.9 million pays zero NY estate tax. An estate of $7.3 million pays roughly $550,000. That cliff creates a situation where having slightly more money actually costs your heirs hundreds of thousands.

For New York residents, estate planning conversations need to account for both the federal and state thresholds. Many clients gift down to just below the NY cliff while also using their federal exemption through out-of-state trusts.

Generation-Skipping Transfer Tax

The generation-skipping transfer (GST) tax exemption matches the estate tax exemption — so it’s also dropping in 2026. The GST tax applies when you transfer assets to grandchildren or more remote descendants (skipping a generation), under IRC Section 2601. The rate is a flat 40%, on top of any estate or gift tax.

If you’re planning dynasty trusts or multi-generational transfers, the higher GST exemption available through 2025 is equally valuable. Allocating your GST exemption to trusts funded now means those trusts — and all future growth inside them — are permanently GST-exempt.

Don’t Forget the Annual Exclusion

Separate from the lifetime exemption, you can give $18,000 per recipient per year (2024) without using any of your lifetime exemption, per IRC Section 2503(b). A married couple can give $36,000 per recipient. These gifts don’t require a gift tax return and have no limit on the number of recipients.

Annual exclusion gifts are the simplest estate-reduction tool available, and they’re completely unaffected by the TCJA sunset. If you have four children and eight grandchildren, a married couple can move $432,000 out of their estate every year with zero tax paperwork. Over 10 years, that’s $4.3 million plus whatever those gifts earned after transfer. For more details on annual and lifetime limits, see our gift tax exclusion 2026 guide. And for understanding how the AMT or child tax credit changes interact with your broader planning, check those guides as well.

Sources & References

• 26 U.S.C. § 2001 — Imposition and Rate of Estate Tax (Cornell Law Institute)
• 26 U.S.C. § 2010 — Unified Credit / Applicable Exclusion Amount (Cornell Law Institute)
• 26 U.S.C. § 2035 — Three-Year Lookback Rule (Cornell Law Institute)
• 26 U.S.C. § 2503 — Annual Gift Tax Exclusion (Cornell Law Institute)
• 26 U.S.C. § 2601 — Generation-Skipping Transfer Tax (Cornell Law Institute)
• 26 U.S.C. § 101 — Life Insurance Proceeds Exclusion (Cornell Law Institute)
• IRS — About Form 706, Estate Tax Return
• IRS — Tax Inflation Adjustments for Tax Year 2024
• IRS — Section 7520 Interest Rates
• Treasury T.D. 9884 — Anti-Clawback Final Regulations (Federal Register)
• New York State Department of Taxation — Estate Tax
• Tax Cuts and Jobs Act of 2017 (Congress.gov)