what will estate tax revert to in 2026

telrinos

3 min read

·

14-03-2025

2

0

Share

The Tax Cuts and Jobs Act (TCJA) of 2017 significantly altered estate tax rules, introducing temporary changes that are set to expire at the end of 2025. This means that unless Congress acts, the estate tax will revert to its pre-TCJA levels in 2026. Understanding these changes and potential reversions is crucial for high-net-worth individuals and their financial advisors.

Key Changes Introduced by the TCJA

The TCJA made several key changes to the estate tax:

• Increased Exemption: The most significant change was a substantial increase in the estate tax exemption. This exemption is the amount of assets that can be passed on tax-free. The TCJA temporarily doubled the exemption.

• Increased Tax Rate: While the exemption increased, the top estate tax rate remained unchanged at 40%.

The 2026 Reversion: What to Expect

Unless Congress intervenes, the following changes are projected for 2026:

• Exemption Reduction: The estate tax exemption is expected to revert from its current (2023) level of $12.92 million per individual ($25.84 million for married couples) to approximately half that amount. The exact figure will depend on inflation adjustments. This means a far greater portion of estates will be subject to estate tax.

• No Change to the Rate: The top estate tax rate of 40% is not slated to change.

• Potential for Increased Tax Liability: This combination of a lower exemption and the same high tax rate means significantly increased estate tax liabilities for many families. Those who had previously planned under the higher exemption might find themselves facing substantial tax bills in 2026.

Example: The Impact of the Reversion

Consider a family with an estate valued at $15 million. Under the current exemption, no estate tax would be owed. However, after the reversion to pre-TCJA levels, a significant portion of the estate will be subject to tax, potentially resulting in millions of dollars in tax liability.

What Can You Do Now?

The potential for estate tax changes in 2026 necessitates proactive planning:

• Review Existing Estate Plans: High-net-worth individuals should review their current estate plans with a qualified estate planning attorney. This includes reviewing wills, trusts, and other estate planning documents to ensure they are aligned with the anticipated changes.

• Consider Gifting Strategies: Gifting assets before the end of 2025 can help reduce the size of the taxable estate. Consult with a financial advisor to understand the implications and legal requirements for gifting.

• Tax-Efficient Strategies: Explore various tax-efficient strategies, such as charitable giving, to minimize estate tax liabilities. This requires expert advice tailored to your specific circumstances.

• Stay Informed: Keep abreast of any legislative developments regarding the estate tax. Changes could occur before 2026.

Frequently Asked Questions (FAQs)

Q: Will the estate tax be eliminated in 2026?

A: No, the estate tax is not expected to be eliminated. It will revert to a lower exemption level, increasing the number of estates subject to tax.

Q: When will the estate tax revert?

A: The reversion is scheduled for 2026 unless Congress takes action to extend or modify the TCJA provisions.

Q: What is the current estate tax exemption?

A: The current (2023) estate and gift tax exemption is $12.92 million per individual.

Q: How can I prepare for the estate tax reversion?

A: Consult with a qualified estate planning attorney and financial advisor to develop a comprehensive estate plan that addresses the anticipated changes.

The impending reversion of estate tax provisions presents significant planning opportunities and challenges. Proactive planning, guided by qualified professionals, is crucial to mitigating potential tax liabilities and securing a smooth transfer of wealth for future generations. Don't wait until 2026 to address these issues; start planning now.