In January 2026, the current lifetime estate and gift tax exemption will be cut in half. Families have less than two years to take advantage of the higher tax-free gifting rules. Congress may extend the provisions in the Tax Cuts and Jobs Act (TCJA) that increased the exemption but taking steps now to prepare for the sunset is a smart move.
ESTATE AND GIFT TAX OVERVIEW
The estate and gift tax is levied on property or assets gifted by individuals or couples, provided the gifts do not meet the criteria for exemption. The maximum estate and gift tax rate currently stands at 40% and is set to increase to 45%.
UNDERSTANDING THE EXEMPTION
The federal estate and gift tax exemption shields individuals or couples from federal estate or gift taxes when transferring a specified amount of property or assets to others during their lifetime or after their death. Currently, individuals with an estate valued at $13.61 million or couples with an estate worth $27.22 million can utilize this exemption to safeguard their assets from federal taxation.
ADDRESSING MISCONCEPTIONS
- Individuals who utilize a portion of the exemption now are not automatically grandfathered in for the remaining amount.
- Taxpayers who use the top of the exemption amount cannot apply the bottom amount to the exemption after 2025.
CONSIDERATIONS FOR STATE ESTATE TAXES
Be aware that many states also impose an estate tax. While some states offer exemptions from the tax, the amounts are typically lower than the federal exemption. Additionally, a few states also impose inheritance tax.
WHAT ACTIONS SHOULD YOU TAKE?
- Download this fact sheet about the estate and gift tax exemption.
- Conduct a comprehensive valuation of your estate.
- Identify potential life events or milestones that might necessitate estate updates (e.g., retirements, new shareholders, relocations, marriages, divorces, births).
- Complete a cash flow analysis to determine the extent of gifting. Decide which assets are best suited for gifting.
- Assess the advantages of transferring or gifting assets before the 2026 sunset.
- Explore alternative estate planning strategies such as Spousal Lifetime Access Trusts (SLATs) or irrevocable trusts for descendants.
- Ensure proper gifting procedures and accurate reporting of gifts.
HOW YOUR TAX ADVISOR CAN HELP
Seek guidance from your tax advisor regarding strategies you can implement now to capitalize on the high federal estate and gift tax exemption. Thoroughly assess your current financial situation and consider future circumstances to make sure the steps you take now protect your long-term financial goals.
The tax professionals at Hancock Askew are ready to answer your questions. Contact us for more information or visit our website.
About Hancock Askew & Co.
Hancock Askew is a professional services firm tracing its origins back to 1910. The firm provides services that include tax, audit, accounting, risk assurance and advisory, SOC examinations, ISO Certifications, transaction advisory, business valuations and other critical business consulting services. With offices in Savannah, Atlanta, and Augusta, Georgia, as well as Miami, Tampa, Jacksonville, and Orlando, Florida, our staff of over 275 professionals provides support to an array of clients ranging from emerging businesses to large corporations, nonprofit organizations to publicly traded companies and individuals. Hancock Askew is a 2024 Southeast Regional Leader, as named by Accounting Today and ranked as a Top 200 Firm in the Nation by Inside Public Accounting. Hancock Askew is an independent member of the BDO Alliance USA. For more information about Hancock Askew, visit www.hancockaskew.com.
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