Just when you thought the waters could not get any frothier, the tax laws are changing in 2026! Read this article to learn about the sunset of the estate tax exemption and what it may mean for you.
Before we get started, you may want to check out these financial planning blogs we’ve written:
Filing your tax return: traps to avoid
Gift tax exclusion - the basics
Let’s start from square one, shall we? What is the gift tax exclusion, in plain English?
But before we go any further, please allow us to remind you that we are not CPAs or tax advisors and nothing in the blog should be interpreted as tax advice. For such guidance, please consult with a tax professional.
Now, for the feature presentation…
If you were to give money to someone other than your spouse or a dependent, you’d have to pay tax on it.
Whoa – hold on a minute! Does this count for all gifts?
No – here are some gifts that are not taxed:
- Medical expenses
- Tuition
- Charitable donations
What about this – let’s say you buy your (cherished and adored) girlfriend a new car for her birthday – do you have to pay Uncle Sam for a result of your generosity? Do you have to run to your accountant every time you want to give someone a generous gift?
No.
Fortunately, most people are excluded from having to pay taxes on the gifts they give due to a provision in the US Tax Code called the annual gift tax exclusion. The annual gift exclusion amount for 2025 is $19,000, according to the IRS. Anything you give lower than this amount, and you don’t have to pay tax on it.
“But what happens if my gift exceeds this amount?” you ask.
What happens if you are in a generous mood, like Santa Claus, and you surpass the annual gift tax exclusion amount?
The good news is that the IRS allows you to give away a certain amount during your lifetime – $13.99 million as of 2025 – without having to pay tax on it.
Soooo…
Let’s say you bought your girlfriend a $50,000 Ferrari,. Your lifetime exemption would merely be reduced by $31,000 ($50,000 minus the $19,000 exclusion amount). You’d still have $13,959,000 in lifetime exemption remaining. Just to be clear, no tax would be paid today. This is probably not an issue for many, but these gifts add up and need to be tracked.
That’s all fine and dandy, except – wait for it – big tax law changes are likely happening in 2026!
What is the tax change for 2026?
At the end of 2025, some parts of the 2017 Tax Cuts and Jobs Act are going to expire, called the “Sunset Provision.” This has a variety of implications, specifically regarding the gift tax exclusion. What’s the bottom line – what will the federal estate tax exemption be in the future? What will the federal estate tax rate be in 2026?
It’s uncertain. New regimes and political agendas can cause massive shifts in the tax code at any point, as we all know.
If the old rules expire, there is a bit more clarity. It looks like the lifetime exemption will drop to about $7,000,000 (VFO, 2025). That means that families with over $7,000,000 (or, $14,000,000 for married couples) will face a 40% federal estate tax rate for gifting their wealth.
Ouch.
Actually…mucho grande ouch.
These 2026 tax law changes may bring a tax hit that many have not planned for. Can anything be done, or will ultrawealthy families be doomed to the death grip of the tax piper?
How to release yourself from the death grip of the Estate and Gift Tax Exemption sunset
Here are a few ideas for ways to manage the estate tax changes for 2026. Just to reiterate, we are not CPAs and what we are discussing is not advice specific to you – please make sure that meet with your CPA to determine if any ideas are viable for your specific situation.
#1 Accelerate your gift scheduling
You may be able to modify your gifting schedule in order to minimize your tax burden. One example would be to gift assets to a (likely younger) family member in a lower tax bracket. They’ll pay capital gains tax, but if it’s less than what the estate tax amount would have been, overall your family has gained. This should be evaluated with diligence and on a case-by-case basis, with the support of a tax professional.
#2 Consider a SLAT
A SLAT is a Spousal Access Lifetime Trust. It is a vehicle that allows you to pass assets to a spouse, using your lifetime exemption amount. It’s an irrevocable trust, but you can still benefit from appreciation in the trust as long as you remain married. As there are many details involved with SLATs, it is best to speak with an estate attorney before taking any action.
#3 Have an overall financial plan
There’s no substitute for having a plan that minimizes taxes and maps out all the different scenarios that could occur. There are many different areas that an affluent person needs to be attentive to within their wealth (investments, taxes, charitable giving, etc.) Managing the estate tax impact on your wealth is important to the overall picture.
Don’t face this headache alone!
Congratulations on getting to the end of this blog about the estate tax exemption and its expiry in 2026. Now that you have the information you need, what’s your overall financial plan?
We are financial advisors in Morristown, NJ serving the local community and beyond. If you have questions about tax planning, retirement strategy, retiring in New Jersey, affording to live there, or (like us) are just plain old Bruce Springsteen fans, reach out and send us a message.
Sources
Bowen, John J. AES Nation, LLC. VFO Inner Circle Special Report, Are Big Estate Tax Changes Coming? 2025_01_VFO_CEGAM_A4_ESTATE_TAX_EDIT.pdf
Berry-Johnson, Janet. (2024, September 18th). Becker CPA. Understanding the Spousal Lifetime Access Trust. https://www.becker.com/blog/cpe/understanding-the-spousal-lifetime-access-trust
Villanova, Patrick. (2025, January 2nd). SmartAsset. Gift Tax, Explained: 2024 and 2025 Exemptions and Rates. https://smartasset.com/estate-planning/gift-tax-explained-2021-exemption-and-rates