By Steven J. Oshins, Esq., AEP (Distinguished)

The federal estate and gift tax exemption is currently $12,060,000 per person. This number increases (or decreases) each year based on inflation and then is rounded.

This article does nothing extraordinary. It simply lays out the projected increases over the next few years based on the most recent inflation rate which is 8.5%. Anybody with a calculator can compute these numbers, but many people have not yet done so, so the numbers outlined herein may come as a shock!

Trump Tax Act

The Trump Tax Act increases (or decreases) the federal estate and gift tax exemption based on inflation each year until the beginning of 2026 when it is cut in half. This figure is rounded each year, but this article will provide for the non-rounded figures and assumes that the reader can round it accordingly.

Year 2022

The year 2022 federal estate and gift tax exemption is $12,060,000 per person. This becomes $24,120,000 for a married couple.

Year 2023

Applying the most recent 8.5% inflation rate, the year 2023 federal estate and gift tax exemption becomes $13,085,100 per person. This becomes $26,170,200 for a married couple.

Year 2024

Applying the most recent 8.5% inflation rate, the year 2024 federal estate and gift tax exemption becomes roughly $14,197,333 per person. This becomes $28,394,666 for a married couple.

Year 2025

Applying the most recent 8.5% inflation rate, the year 2025 federal estate and gift tax exemption becomes roughly $15,404,106 per person. This becomes $30,808,212 for a married couple.

Year 2026

Applying the most recent 8.5% inflation rate, the year 2026 federal estate and gift tax exemption becomes roughly $16,713,455 per person prior to being cut in half.  After being cut in half, it becomes roughly $8,356,727.  This becomes $16,713,455 for a married couple.

Planning Opportunities through December 31, 2025

The clock is ticking to use the exemption prior to January 1, 2026 when it is cut in half.  Because we have a few years, there isn’t a huge rush to use it, but still there’s no time better than the present to start the process because using it today is better than using it tomorrow assuming the gifted assets will appreciate in value.

Therefore, those who are fortunate to be wealthy enough to have an estate tax concern should err towards using it sooner rather than later simply because the odds are that the gifted assets will increase in value, thereby enhancing the ultimate estate tax reduction.

The fact that there is an incentive to gift now rather than later has pushed many to continue to contact their estate planners to draft irrevocable gift trusts in order to take advantage of their gift tax exemption before it drops in half.

Many others are sitting on the sidelines waiting until 2025 to make their big gifts.  Therefore, estate planners should continue to see a steady flow of clients wanting irrevocable gift trusts at least until the end of 2025.

Planning Opportunities On or After January 1, 2026

We will be in unchartered territory in 2026 where many wealthy clients will suddenly find that they have no federal estate and gift tax exemption remaining.

Therefore, it is imperative that these clients set up and fund intentionally defective grantor trusts prior to 2026 so they can continue to leverage those trusts by making income tax-free installment sales using valuation discounts.  Post-2025, this will be the principal planning that is done.

In the event that a client doesn’t have such a trust, the estate planner can always use a Grantor Retained Annuity Trust instead.

Summary

The exemption is rising quickly, but in 2026, it will drop in half.  It’s a good time to consider using your exemption by making gifts to one or more intentionally defective grantor trusts.

RELATED EDUCATION

If you found this article interesting, you might also be interested in these other educational programs and products by Steve Oshins:

• The Spousal Lifetime Access Trust: A Gifting and Creditor Protection Technique
• Estate Planning Techniques in a Time of Low Interest Rates
• The Installment Sale to an Intentionally Defective Grantor Trust
• The Grantor Retained Annuity Trust: Significant Estate Tax Savings with Nearly Zero Gift Tax Risk
• Steve’s FREE State Rankings Charts

ABOUT THE AUTHOR

Steven J. Oshins, Esq., AEP (Distinguished)  is a member of the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011.  He has been named one of the 24 “Elite Estate Planning Attorneys” and the “Top Estate Planning Attorney of 2018” by The Wealth Advisor and one of the Top 100 Attorneys in Worth. He is listed in The Best Lawyers in America® which also named him Las Vegas Trusts and Estates/Tax Law Lawyer of the Year in 2012, 2015, 2016, 2018, 2020 and 2022.  He can be reached at 702-341-6000, ext. 2, at soshins@oshins.com or at his firm’s website, www.oshins.com.