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Federal Estate Tax Exemption in 2026: What the TCJA Sunset Means for Your Estate Plan

By Laura Bennett · May 12, 2026 · 10 min read

Estate tax planning
Photo by Jakub Żerdzicki on Unsplash

The federal estate and gift tax exemption is the largest moving target in U.S. estate planning right now, and most families with material wealth are running out of time to plan around it. The exemption — currently $13.99 million per individual for deaths in 2025 — is scheduled to drop by roughly half on January 1, 2026, when the Tax Cuts and Jobs Act's temporary doubling expires under a sunset provision Congress wrote into the law in 2017. What "roughly half" actually means depends on how Treasury indexes the base figure for inflation between now and the sunset date, but the working consensus among estate planners is that the post-sunset exemption will land somewhere between $7 million and $7.5 million per individual. For a married couple with portability elected, that's the difference between $27.98 million of combined sheltered transfers in 2025 and roughly $14–15 million starting in 2026. This guide walks through what the sunset actually does, the planning moves estate-planning attorneys are running through their clients' files this year, and the deadlines that matter.

For broader estate planning coverage, see our related guides on types of power of attorney, living wills, and advance directives vs. living wills.

What the federal estate and gift tax exemption actually is

The federal estate tax applies to the value of property transferred at death; the federal gift tax applies to lifetime transfers above the annual exclusion. The two taxes share a single unified credit, which is the dollar figure most people mean when they say "the exemption." Each U.S. citizen and resident has a lifetime exemption that can be used during life via taxable gifts, at death via the estate tax, or some combination of the two. Transfers above the exemption are taxed at a flat 40% federal rate.

The unified credit is in addition to the annual gift tax exclusion, which is $18,000 per donee in 2025 ($19,000 starting in 2026 per the IRS's annual indexing) and which doesn't count against the lifetime exemption. The unified credit is also separate from the unlimited marital deduction for transfers between U.S. citizen spouses and the unlimited charitable deduction for transfers to qualified charities.

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The 2026 sunset: what's actually happening

The Tax Cuts and Jobs Act of 2017 (TCJA), signed into law in December 2017, doubled the federal estate, gift, and generation-skipping transfer (GST) tax exemptions from the prior approximately $5 million per-person baseline (indexed for inflation) to approximately $10 million per person — also indexed. The TCJA's increased exemption applies to transfers and decedents through December 31, 2025. Without further legislation, the exemption reverts on January 1, 2026 to the pre-TCJA $5 million baseline, indexed for inflation from 2010 forward. The actual sunset figure depends on the IRS's chained-CPI inflation calculation but is widely projected to fall in the $7.0–$7.5 million range per individual for 2026.

The sunset is automatic — it does not require Congress to do anything. Congress could extend the higher exemption, make it permanent, or modify it. As of May 2026, no permanent fix has been enacted, though several bills addressing the sunset have been introduced. Estate planners are currently advising clients on a "plan for the sunset, hope for the legislative fix" basis.

What the exemption numbers actually look like

  • 2025 (TCJA-era): $13,990,000 per individual; $27,980,000 per married couple with portability properly elected.
  • 2026 (post-sunset, projected): Approximately $7.0–$7.5 million per individual; approximately $14–$15 million per married couple. Final figure determined by the IRS's inflation-adjustment publication.
  • Generation-skipping transfer tax exemption: Same as the estate/gift exemption — drops in parallel.
  • Annual gift tax exclusion (separate from the lifetime exemption): $18,000 per donee in 2025, $19,000 per donee in 2026. Not affected by the sunset.

The anti-clawback rule: you can lock in the 2025 exemption

The single most important regulation in the post-TCJA estate-planning landscape is the IRS's "anti-clawback" rule, finalized in 2019 at Treasury Decision 9884 and codified in Treasury Regulation § 20.2010-1(c). The rule confirms that a donor who uses the higher TCJA-era exemption to make gifts before the 2026 sunset will not be retroactively penalized after the sunset — meaning the gift tax computation at death will use the higher exemption that applied at the time of the gift, even if the death occurs after the sunset has reduced the exemption.

In plain English: gifts made in 2025 using the $13.99 million exemption "lock in" that exemption. If the donor dies in 2027 with a reduced $7.5 million exemption in effect at death, the IRS does not "claw back" the prior use of the higher exemption. This is the technical foundation for the entire pre-sunset planning push.

One important nuance: the anti-clawback rule generally requires that the gift be a completed transfer that uses the increased exemption — meaning the donor must actually transfer assets out of the estate. Gifts that are incomplete for transfer-tax purposes (for example, retained-interest trusts where the donor keeps too much control) may not qualify. A 2022 IRS proposed regulation also identified certain "deathbed-style" transfers where anti-clawback protection may not apply. Specific planning structures must be vetted by qualified counsel.

The pre-sunset planning moves estate planners are running

1. Direct outright gifts

The simplest pre-sunset move: make taxable gifts that use exemption that would otherwise be lost on December 31, 2025. The mechanics: file a federal gift tax return (Form 709) for the year of the gift, allocate the lifetime exemption, and remove the gifted assets (and all their future appreciation) from the donor's taxable estate. Common assets gifted this way: cash, marketable securities, interests in closely-held businesses, real estate, life insurance policies.

2. SLATs (Spousal Lifetime Access Trusts)

A SLAT is an irrevocable trust funded with one spouse's exemption that names the other spouse as a discretionary beneficiary. The donor spouse uses gift exemption to fund the trust; the beneficiary spouse can receive trust distributions if needed for support; the trust assets sit outside both spouses' taxable estates for federal estate tax purposes. SLATs are the dominant pre-sunset structure for married couples who want exemption-use protection without losing all economic access to the gifted assets. They require careful drafting to avoid the "reciprocal trust doctrine" if both spouses fund SLATs.

3. GRATs (Grantor Retained Annuity Trusts)

GRATs are estate-planning vehicles where the grantor transfers assets in exchange for a stream of annuity payments back over a fixed term. If the assets appreciate at a rate faster than the IRS § 7520 rate at funding, the excess passes to remainder beneficiaries free of gift and estate tax. GRATs are less directly tied to the sunset (they work regardless of the exemption), but become more useful in conjunction with the sunset because they shift appreciation out of the taxable estate while leaving exemption available.

4. Dynasty trusts and GST-exempt structures

For families planning to keep wealth across multiple generations, the generation-skipping transfer (GST) tax exemption is as important as the estate/gift exemption — and it drops on the same sunset schedule. Pre-2026 funding of dynasty trusts with allocated GST exemption is a major planning play for high-net-worth families. The GST exemption can be allocated to gifts and trust funding to shelter multiple generations of beneficiaries.

5. Family limited partnerships and minority-interest discounts

For business owners and families holding real estate, structuring transfers through a family limited partnership (FLP) or limited liability company (LLC) and gifting limited interests at valuation-discounted values can multiply the effective use of the exemption. The IRS regularly challenges aggressive discount appraisals, but properly-documented FLPs with genuine non-tax business purposes routinely sustain 20–35% discounts in tax court.

6. Charitable lead trusts and split-interest planning

For families with significant charitable intent, charitable lead annuity trusts (CLATs) and charitable lead unitrusts (CLUTs) can leverage charitable deductions to magnify the effective use of exemption while supporting causes the family cares about. CLATs are particularly useful in low-interest-rate environments, though the current § 7520 rate environment is less favorable than the post-2008 period was.

The state-level estate tax overlay

Federal estate tax planning is only part of the picture. Twelve states plus the District of Columbia impose their own state estate tax, six states impose an inheritance tax, and one state (Maryland) imposes both. State estate tax exemptions are typically much lower than the federal exemption — Massachusetts at $2 million, Oregon at $1 million, Washington at $2.193 million for 2024, New York at $7.16 million for 2024. States that impose state estate taxes generally do not have anti-clawback protections, and state estate tax planning operates on a different set of rules than federal planning.

For families with property in multiple states, the situs of property at death matters as much as the decedent's domicile. Residency planning — for clients considering relocation from a state-tax state to a no-state-tax state — has become a meaningful part of pre-sunset planning conversations.

What clients are actually getting wrong

  • Waiting too long. Complex pre-sunset planning takes months — appraisals, trust drafting, asset transfers, gift tax returns. Clients waiting until late 2025 are running out of professional bandwidth.
  • Underestimating the value of the giving spouse's access through SLAT structures. "I'll give it all away" sounds bold; the reality is that most clients want economic access if circumstances change, and SLAT-style structures preserve that.
  • Forgetting the GST exemption. Allocating GST exemption to gifts is a separate election that must be made on Form 709. Failing to allocate can leave gifted assets exposed to GST tax in later generations.
  • Ignoring state estate tax. Federal planning that ignores state estate tax can produce a larger state tax bill than was avoided federally.
  • Not refreshing valuations. Closely-held business and real estate appraisals must be current as of the gift date. Stale appraisals are routinely challenged.
  • Assuming Congress will fix it. Legislative extensions of the higher exemption have been discussed but not enacted as of May 2026. Planning around the sunset is the prudent posture; legislative relief, if it comes, can always be re-planned around.

The timeline that matters

  • Now through December 31, 2025: Pre-sunset planning window. All gifts made by 12/31/2025 use the $13.99 million per-person exemption with anti-clawback protection.
  • January 1, 2026: Exemption automatically drops to approximately $7.0–$7.5 million per individual (final IRS figure published late 2025).
  • April 15, 2026: Form 709 (gift tax return) for 2025 gifts is due, including extensions for clients in disaster-relief areas.
  • Throughout 2026: Post-sunset planning for clients whose estates are above the lower exemption — annual exclusion gifting, SLAT funding using the new lower exemption, dynasty trust top-ups.
  • December 31, 2026 (proposed): Several pending Congressional bills would extend the higher exemption — the legislative window for action is now narrow.

Frequently asked questions

What is the federal estate tax exemption for 2025?

$13,990,000 per individual; $27,980,000 per married couple with portability properly elected via Form 706. Transfers above the exemption are taxed at a flat 40% federal rate.

What is the federal estate tax exemption for 2026?

Approximately $7.0–$7.5 million per individual following the TCJA sunset on January 1, 2026, with the final figure published by the IRS based on its annual chained-CPI inflation adjustment. The exemption drops automatically without further Congressional action. Married couples will have approximately $14–$15 million in combined exemption with portability.

What is anti-clawback and why does it matter?

The IRS's anti-clawback rule, finalized in Treasury Decision 9884 (2019) and codified in Treasury Regulation § 20.2010-1(c), confirms that gifts made using the higher TCJA-era exemption will not be retroactively penalized after the 2026 sunset reduces the exemption. The estate tax computation at death uses the higher exemption that applied at the time of the gift, even if death occurs after the sunset. Anti-clawback is the legal foundation that makes pre-sunset gifting reliable.

What is a SLAT and why are estate planners using them?

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust funded with one spouse's gift exemption that names the other spouse as a discretionary beneficiary. The structure lets a married couple use gift exemption to remove assets from the taxable estate while preserving economic access through the beneficiary spouse. SLATs are the dominant pre-sunset structure for married couples and require careful drafting to avoid the "reciprocal trust doctrine" if both spouses fund SLATs.

Will Congress extend the higher exemption past 2025?

As of May 2026, no legislative extension has been enacted, though several bills addressing the sunset have been introduced. Estate planners are advising clients to plan around the sunset as the prudent posture. Any subsequent legislative extension can be replanned around, but waiting for legislation that may not come is the dominant risk.

Sources

This article is general legal and tax information, not legal or tax advice. Estate planning is fact-specific and depends on the donor's state of residence, family structure, asset composition, and goals. Decisions on pre-sunset gifting, SLAT funding, GST allocation, and other planning structures should be made with qualified estate-planning counsel.

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