Tips to enhance your estate and income tax planning now in anticipation of looming sunsets

The TCJA nearly doubled the lifetime estate and gift tax exemption, transitioning from $5.6 million to $11.18 million. Indexed for inflation, the exemption has now reached a historic high of $13.61 million this year. However, without congressional action, the federal estate and gift tax exemption will be reduced by nearly half–to an estimated $7 million–as of January 1, 2026, due to a sunset provision in the TCJA. At the same time, the current 40% estate and gift tax rate is scheduled to increase to 45%, which is the highest rate since 2009.

“While it’s possible there may be new legislation between now and 2026, with this sunset looming, now is the time to dust off your estate plan, revisit your goals, and think more urgently about whether opportunities exist to enhance your estate and income tax planning,” said Jeanne Krigbaum, chief wealth planning officer and senior vice president with 1834, a division of Old National Bank.

If you have a taxable estate, are there gifts you would consider making now rather than later, if it meant taking advantage of the current high exemption? Do you have assets that you anticipate will significantly appreciate over time? If so, it may make sense to transfer them out of your estate now, as you will be removing the assets plus all future growth from your estate.

“However, if it was only about the numbers, everyone would give away every dollar in excess of the exemption, but we know that is not the reality,” Krigbaum said. “Despite the impending sunset provisions, any planning being done between now and then should still be in line with your goals.”

Other provisions.

In addition to the estate and gift tax exemption, the TCJA has many provisions that are scheduled to sunset at the end of 2025. Some of the most notable provisions include:

• Income tax brackets will revert to pre-TCJA levels. For example, the top individual, estate and trust income tax bracket is scheduled to increase from 37% to 39.6%. Work with your advisor and determine whether opportunities may exist to take advantage of your current lower tax rate. For example, some clients have found value in accelerating their income through a Roth conversion now, in anticipation that their rate will go up.
• The annual deduction for charitable cash contributions increased from 50 to 60% of adjusted gross income via the TCJA. This deduction will sunset back to 50% in 2026, so if you are considering making a large charitable gift of cash, you may be able to deduct a larger portion of that gift, if the gift is made prior to 2026.
• The standard deduction nearly doubled when the TCJA was enacted, which means many taxpayers are receiving a higher deduction without the need for itemizing. In 2024, the standard deduction is $14,600 for single and married filing separately individuals, $29,200 for married filing jointly, and $21,900 for heads of household. In 2026, this deduction will be cut nearly in half. This means more taxes will be paid for those who shift to itemizing again.

Communicate with your team.

Even if you are confident that the TCJA sunsets will not affect your existing financial and estate plans, please remember that it is still important to revisit these plans periodically as they should evolve over time, just like you. Everyone’s situation is unique, so please consult with your advisory team for help determining whether your situation is one that could benefit from some additional planning between now and the end of 2025.