The Tax Cuts and Jobs Act of December 2017 temporarily doubled the Basic Exclusion Amount (BEA)—the total value of lifetime gifts and estate assets that can be excluded from federal estate tax. For 2024, this inflation-adjusted exemption stands at $13.61 million per person or $27.22 million for married couples. Any estate value exceeding these amounts will be taxed at a 40% rate.
However, this increased exemption is set to expire soon. Beginning January 1, 2026, the BEA will revert to its pre-2018 level of $5 million, adjusted for inflation. As a result, estates valued above this lower threshold could be subject to significant federal estate tax liabilities.
The 2026 Reduction: What You Need to Know
Under current law, the expanded exclusion applies only to tax years 2018 through 2025. After that, any gifts or estate transfers that exceed the reduced BEA could trigger a hefty tax bill. But here’s the good news: gifts made before the end of 2025 will be grandfathered in, thanks to an IRS ruling from 2019. This means those who take advantage of the larger BEA during this window won’t face retroactive taxation when the exemption drops in 2026.
Why Acting Now Is Critical
As the end of 2025 approaches, many high-net-worth individuals are expected to engage in estate tax planning to capitalize on the current higher exemption. If you’re in a position to transfer property or funds to your heirs, now is the time to act.
Waiting until later in 2025 may lead to crowded schedules for accountants, estate planning attorneys, and appraisers, making it harder to execute your plans effectively. By preparing now, you can ensure you’re making the most of today’s favorable tax environment.
Next Steps: Maximize Your Estate Planning
To explore how the upcoming changes might affect your estate and tax strategy, reach out to an experienced estate planning attorney. MeyerPink Law can guide you through the process, helping you preserve your wealth for future generations.
Contact us today at (209) 694-3085 or visit the IRS Estate and Gift Tax FAQs for more information.
