Planners have long been talking about the sunset of the 2017 Tax Cuts and Jobs Act. Now with the 2026 deadline looming, they are focusing on some of the biggest potential changes affecting estates.
They note that advisors have two years to plan, which is a short period of time in the estate planning business.
“Actions related to gifting to trusts, as well as the establishment of gifting vehicles, can take time,” said Simone Devenny, western managing director for Gratus Capital in Atlanta. “In addition, many estate planning attorneys will be overwhelmed with demand.”
“Don’t wait until 2025 to start this process because some estate tax attorneys may not accept new clients after a certain point in 2025,” added Pamela Dennett, partner for private client services with Eisner Advisory Group in Dallas.
The federal estate tax exemption, now $12.92 million per person, plummets on Jan. 1, 2026, to about half that (it’s indexed for inflation). “For 2022 and 2023, we have seen the largest inflation adjustments to the lifetime exemption,” Dennett said. “The inflation adjustment for 2022 added $360,000 of additional exemption and the inflation adjustment in 2023 added $860,000.”
“It may be wise for clients to give away assets and their appreciated value from their estates,” said Susan Ciupak, Scottsdale, Ariz.-based vice president and senior trust officer with Arden Trust Company.
“For those with assets that fall below the current exclusion amounts, it may seem there’s no need for tax planning, but they could be giving up a significant opportunity if the exclusions aren’t extended,” said Neil V. Carbone, partner and trusts and estate litigation expert at the law firm Farrell Fritz in Uniondale, N.Y. “Those with assets above the current exclusions should consider making gifts [and avoiding] the 40% federal estate tax.”
Matthew R. Marini, associate director of financial planning at Coastal Bridge Advisors in Westport, Conn., recommended several ways to use the current exemption, including giving the maximum in annual tax-free gifts: $17,000 ($34,000 for married couples filing jointly).
“If you directly pay qualified tuition or medical expenses to a school or health care provider, these payments are not considered taxable gifts and do not count against your lifetime gift exemption,” he added. “Consider fully funding 529 college savings accounts. Depending on the state where the plan is established, contribution limits can vary … to more than $500,000 per beneficiary. You can even contribute five years worth of contributions in a single year.”
“The most common mistake clients make is failing to regularly review their estate plan to account for changes in family dynamics or the law,” Ciupak said.
Another mistake: Making gifts with strings attached that inadvertently draw the asset back into the transferor’s taxable estate. “A classic example is making a gift of a house but then continuing to live at the house without paying rent as if no transfer took place,” said Neil V. Carbone, partner and trusts and estate litigation expert at the law firm Farrell Fritz, in Uniondale, N.Y.
Emily C. Smith, director of financial planning with Williams Jones Wealth Management in New York, warned against forgetting to name successors for positions of executors, trustees and agents. “Trustees and the like may not be fit to serve, decline the appointment or die within the term of the trust,”’ she said. “Back-ups should always be named.”
“It’s very easy to set aside your [estate papers] and let them collect dust for 10 or 20 years,” Dennett said. “Every time a life event occurs in a family, your estate plan should be reviewed and possibly may need to be updated. If none of those events occur, an estate plan should [still] be reviewed every five years, if not sooner.”
“Consider the ages your children … [and] whether current trustee or executor choices are still the best,” Ciupak added.
The most obvious mistake? Said Carbone, “Having no plan at all.”