Wealthy families are transferring millions of dollars of asset value ahead of the looming reduction to the federal estate, gift and generation-skipping transfer tax exemptions (federal exemptions). The reasons are many—but begin with the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). When the TCJA passed, the federal exemptions doubled, increasing the 2017 federal exemptions from $5,490,000 (the then $5,000,000 exemption, as indexed for inflation) to $11,180,000 in 2018. As of 2021, the federal estate and lifetime gift tax exemption is $11,700,000 per individual ($23,400,000 for a married couple, with portability). However, the TCJA will sunset on Dec. 31, 2025: on Jan. 1, 2026, the federal exemptions will reduce to $5,000,000, as indexed for inflation.

New Administration, New Tax Laws

Along with the scheduled reductions to the federal exemptions, the 2020 federal election results are causing further concern about potential changes to the federal taxation of estates and gifts.

Since the election, there is no shortage of possible scenarios that could impact the current federal estate, gift and generation-skipping transfer tax regime. The scenarios include reducing the federal estate tax exemption to $3,500,000 and reducing the federal gift tax exemption to $1,000,000. Furthermore, there is talk about raising the rate of taxation on estates/gifts that exceed the exemption from the current 40% to a potential 65%, for estates/gifts exceeding $1,000,000,000.