Many people assume that the Federal Estate Tax won’t apply to their family based on the current ceiling and the value of their assets today. This ceiling is about to be lowered however, so there are many more American families who need to sit down with their estate planning attorney and review their options. As the Tax Cuts and Jobs Act (TCJA) of 2017 approaches its sunset in January 2026, families with substantial but not necessarily ultra-wealthy estates need to start considering their estate planning strategies. Planning that takes into account the TCJA sunset is not just for the ultra-wealthy, it is also important for affluent but not ultra high net worth American families, whose assets may grow significantly due to investment returns. For instance, a $10 million estate could potentially double every decade with a 7.3% annual return, quickly exceeding future exemption limits. Planning now ensures that families can take advantage of the current higher exemption amounts to minimize potential tax liabilities.

Currently, the TCJA allows for a high lifetime estate and gift tax exemption—$13.61 million per individual and $27.22 million per couple, which is significantly higher than the pre-TCJA limits. However, without new legislation, these exemptions will revert to approximately $7 million per individual and $14 million per couple. This means that even families who are affluent but not necessarily super-rich are facing a “use it or lose it” situation. If these exemptions revert, the estate tax liability could be as high as $2.8 million per individual, or $5.6 million per couple, making proactive planning an essential part of managing any potential future impacts.

For American families with estates above $20 million, the need for strategic estate planning becomes even more pressing. Utilizing the current exemptions effectively is paramount, particularly for couples whose combined assets far exceed the $27.22 million threshold. One effective strategy involves one spouse fully utilizing their exemption by transferring assets into trusts or directly to beneficiaries, thereby shielding a significant portion of the estate from future taxes. The second spouse can then use their exemption or retain it to further protect the estate from future appreciation and potential tax increases. By taking these proactive steps, families can secure lasting tax advantages before the TCJA sunset.

If you are thinking of taking proactive steps to anticipate the TCJA sunset, please contact our experienced Massachusetts estate planning team today. Please contact Rob Arone or Julia Abbott for more information.