A couple I’ve represented for years recently sat in my Manhattan office. Their net worth is around $20 million—a figure built over a lifetime of work. For the last few years, they believed their family was fully shielded from federal estate taxes. Then they heard the phrase “2026 sunset,” and they called me. They were right to be concerned. The law that protects their estate today is set to expire.
Many families have planned diligently under the current rules, but the ground is about to shift. The numbers released by the IRS for 2024 are good news, but they come with a firm deadline.
The 2024 Numbers and the False Sense of Security
Each year, the IRS adjusts the federal estate and gift tax exemption for inflation. For 2024, that amount increased to $13.61 million per individual. A married couple now has a combined exemption of $27.22 million. This is the amount you can pass to your heirs—during your lifetime or at death—without triggering the 40% federal estate tax.
The annual gift exclusion also increased, to $18,000 per person. You can give this amount to any number of individuals each year, and these gifts do not count against your lifetime exemption. It is a powerful tool for transferring wealth in a deliberate, tax-efficient way.
These high exemption amounts seem to solve the estate tax problem for all but the wealthiest families. This creates a false sense of security. These numbers are temporary. They exist because of the Tax Cuts and Jobs Act of 2017, and a key provision of that law is scheduled to automatically expire at the end of 2025.
The 2026 Sunset: When the Exemption Is Cut in Half
Unless Congress acts, the federal estate tax exemption will revert to its pre-2018 level on January 1, 2026. Adjusted for inflation, the exemption is projected to fall to roughly $7 million per person.
This is not a political forecast; it is the current state of the law. A married couple with a $20 million estate, completely exempt from federal tax today, could suddenly find nearly $6 million of their legacy exposed to a 40% tax in just two years. That is a potential tax bill of over $2.3 million that could have been avoided.
This impending change creates a clear, two-year window for intentional planning. The core question for families with estates valued between $7 million and $27 million is how to use today’s historically high exemption before it disappears. The IRS has confirmed there will be no “clawback,” meaning gifts made using the higher exemption between now and the end of 2025 will not be retroactively taxed if the exemption later drops.
Stewardship in the Face of Uncertainty
For my clients, this is about stewardship. It is about ensuring the assets they built are passed on to the next generation according to their wishes, not the government’s default rules. Waiting until 2026 is a passive choice that can have massive consequences.
A prudent strategy involves using the current exemption now. This is often accomplished by making large lifetime gifts, typically into a carefully structured irrevocable trust. A trust allows you to remove assets from your taxable estate while still defining how those assets are to be managed and distributed for your beneficiaries. For married couples, structures like a Spousal Lifetime Access Trust (SLAT) can provide a way to make a significant gift while retaining some indirect access to the funds if needed.
We must also remember this entire discussion is about the federal estate tax. New York has its own estate tax, with a 2024 exemption of only $6.94 million. Unlike the federal system, New York’s tax has a “cliff.” As defined in New York Tax Law § 952, if the value of your estate is more than 105% of the exemption amount, you do not just pay tax on the overage—you lose the exemption entirely and pay tax on the whole estate. Federal and state planning must work in concert.
The next two years offer a rare opportunity. The law, as it stands, allows you to secure a significant tax advantage for your family’s future. Taking deliberate action now is the only way to ensure your legacy is governed by your own design.
The first step is to get clarity. If you believe your estate’s value may fall near or above the projected 2026 exemption levels, I suggest a detailed review of your assets. We can schedule a meeting to map your current net worth against the changing law and discuss the fiduciary structures that could preserve your life’s work for the next generation.
