The countdown is on. The increased estate and gift tax exemptions established by the Tax Cuts and Jobs Act (TCJA) of 2017 are scheduled to sunset as of Dec. 31, 2025. With Congressional intervention looking increasingly unlikely, the valuable tax advantages will expire, returning to 2017 levels, adjusted for inflation. In short, as of 2026, the maximum estate and gift tax exemptions will be roughly half what they are today.
In effect, the TCJA created a “sale” on federal taxes. Now, high-earning professional services executives have a limited window of time to lock in significant tax savings when transferring wealth to the next generation. As the countdown to Dec. 31, 2025 continues, consider five key actions to refine your estate and gift planning strategies.
1. Know what the current exemptions are and what will change in 2026.
Federal estate taxes apply to wealth that transfers to heirs and beneficiaries after your death. Federal gift taxes apply to wealth you transfer during your life. In both cases, the transfers are subject to a 40% flat tax rate.
Under the Tax Cuts and Jobs Act, up to $13.61 million per individual and $27.22 million per couple are exempt from federal gift and estate taxes in 2024. After the sunset date, these maximums will revert to the 2017 amounts of $5.6 million per person and $11.18 million per married couple, adjusted for inflation. In addition, the threshold for when estate taxes are owed will go back to applying to any estate over $5 million, adjusted for inflation.
Here’s the bottom line: If you expect to gift more than $5 million in your lifetime or after death, you should consider making gifts and transferring assets out of your estate before 2026. It’s worth noting the IRS has clarified that wealth transfers made before the end of 2025 will not be subject to clawback into a federal taxable estate when an individual passes away after 2025.
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2. Maximize annual gift opportunities.
The Tax Cuts and Jobs Act also temporarily increased the annual gift tax exclusion amount. In 2024, individuals can give up to $18,000 to as many people as they want without paying any tax on the gift. Married couples can maximize the annual exclusion by “splitting” the gift and using both of their individual annual exclusions for a maximum of $36,000. Qualifying annual gifts do not count toward the estate and lifetime estate and gift tax exemption total.
In addition, you can reduce your taxable estate by making unlimited payments on behalf of others to educational institutions or medical providers for qualified expenses. You won’t owe gift taxes on these types of direct payments, and they don’t affect your ability to also give an annual gift of up to $18,000 to the individual.
3. Mitigate future tax liabilities.
Optimizing the current federal tax exemptions takes careful and strategic planning. For professional services industry executives, this means working with an expert estate planning advisor to assess your personal wealth, inclusive of cash, investments, properties and partnership equity. An advisor can also help you estimate projected growth in value and determine which assets make the most sense to transfer.
An expert advisor will provide guidance on how to structure the transfer of assets so any concerns about control are minimized. With the wide range of trust vehicles available, structures can be personalized to fit unique situations and needs. For example, a spousal lifetime access trust (SLAT) removes property from an estate by gifting the assets to a spouse in the form of a trust. Any future appreciation of the assets takes place in the trust and is not included in the estate value for federal tax purposes. Similarly, a dynasty trust enables wealth to be passed from generation to generation without incurring federal estate and gift taxes while the assets remain in the trust.
4. Use life insurance strategically.
Life insurance is a valuable tool within a well-structured estate plan. One way life insurance is leveraged is to help beneficiaries pay estate taxes and other expenses upon your death. However, large life insurance policies also add value to your estate. In that case, creating an irrevocable trust as the beneficiary of the life insurance policy generally excludes the policy from the estate, making it exempt from federal estate taxes.
Life insurance is also a useful way to address inequities when allocating assets to heirs. Life insurance policies can offset the differences with payouts that are equal to an asset that’s not easily split among heirs.
5. Start planning now.
Time is limited to explore available options, identify assets and determine the appropriate trust structure for moving assets out of your estate. If you’re adding life insurance, your trust agreements must be in place before setting up the policy. The process takes time and requires specialized resources, such as attorneys, tax advisors and valuation experts. Many of these experts are already reporting a backlog, and the wait times will only get longer as the deadline gets closer.
Take a look at an estimated timeline for executing a plan that includes creating a trust and adding a life insurance policy:
The professional services industry experts at CBIZ can help you explore wealth transfer options that fit your needs and optimize the available tax exemptions before they sunset on Dec. 31, 2025. Connect with a member of our team and gain access to more resources here.
This article includes input from Anne Long, President of CBIZ Individual Insurance Solutions. Through Anne’s collaborative relationships with key partners, she helps establish business development, product development, risk, finance, technology and operations in individual insurance product lines.