Resurrecting The Death Tax

The current federal estate and gift tax exemption is scheduled to end on December 31, 2025, and the exemption amount will drop back down to pre-Tax Cuts and Jobs Act levels.

The current federal estate and gift tax exemption amount is $12,920,000 for individuals and $25,840,000 for married couples in 2023. This means that an individual can gift up to $12,920,000 throughout their lifetime or leave that amount to their heirs without incurring federal estate or gift taxes. However, this exemption amount is scheduled to revert back to the prior amount of $5 million adjusted for inflation, or $7,000,000 in 2026. It is important to be aware of the exemption as it will be applied in 2026 when it reverts to the prior law, potentially causing a loss of the nearly $6 million difference.

After the sunset, the maximum gift and estate tax rate is set to increase to 45% in 2026. However, the step-up in cost basis will remain, allowing heirs to avoid taxes on gains in the value of assets that occurred prior to the death of the estate holder. It is recommended that individuals review their estate plans with a wealth advisor to minimize taxes on their estate and ensure their beneficiaries receive as much wealth as possible.