The Sunsetting of the Tax Cuts and Jobs Act and Its Impact on Federal Estate Tax Exemptions
The Tax Cuts and Jobs Act (“TCJA”), passed in 2017, was a landmark piece of legislation that reshaped the U.S. tax system. One of the key provisions of the TCJA was a substantial increase in the federal estate tax exemption—the amount individuals can pass on to their heirs without incurring federal estate taxes. This provision, however, is set to sunset at the end of 2025, meaning that unless Congress takes action, the exemption levels will revert to their pre-TCJA amounts.
The outcome of the 2024 U.S. election may significantly influence the future of the estate tax exemptions and whether they remain at their current levels or return to a much lower threshold. This article explores how the expiration of the TCJA’s estate tax exemptions might play out and how the election results could shape future policy.
The Federal Estate Tax and the TCJA
Before the TCJA was enacted, the federal estate tax exemption was relatively modest by today’s standards. In 2017, the exemption was set at $5.49 million per individual (adjusted for inflation), meaning individuals could leave that amount to their heirs without triggering estate tax. However, for estates exceeding this exemption amount, a tax rate of up to 40% applied to the value of the estate over the exemption limit.
The TCJA made a substantial change to this exemption, nearly doubling the amount an individual could pass on to his or her heirs without facing estate tax. The law raised the exemption to $10 million per person, adjusted for inflation. For 2023, the exemption increased to $12.92 million per person, with married couples able to pass on nearly twice that amount.
This significant increase in the estate tax exemption was intended to provide relief to wealthy families, allowing them to pass more of their assets to their heirs without facing the high estate tax burden that many had historically encountered. However, this increase is temporary and is scheduled to revert to pre-TCJA levels at the end of 2025.
The Sunsetting of the TCJA’s Estate Tax Provisions
Under the current structure of the TCJA, the estate tax exemption will be halved after December 31, 2025, unless Congress intervenes. For the 2026 tax year, the exemption is expected to return to approximately $7 million per individual.
This change could have a significant impact on high-net-worth individuals and families, as many would be subject to estate tax once the exemption reverts. The return to the lower exemption threshold would mean that estates valued at over $7 million would be taxed, potentially creating a sizable tax liability for the estates of wealthy individuals. For married couples, the tax exemption would be twice that amount.
How the 2024 Election Could Influence the Estate Tax Exemption
The fate of the federal estate tax exemption is shaped by the 2024 election, as the incoming administration and Congress will have a critical role in determining whether the TCJA’s estate tax provisions are extended, modified, or allowed to expire.
In light of the Republican victory in the 2024 election, it is likely that the party will advocate for extending the current, higher estate tax exemption levels or making them permanent. Historically, Republicans have favored tax policies that benefit wealthier individuals and families, and the estate tax is often seen as a key issue in these discussions. A Republican-controlled White House and Congress would likely push for legislation to ensure that the $12.92 million exemption (and the $25.84 million exemption for married couples) remains in place.
If you have any questions about estate exemptions or would like to schedule a consultation to discuss creating or updating your estate planning, please contact our estate planning attorneys: Daniel S. Williford at 585-512-3511 or dwilliford@mccmlaw.com; Spencer C. Malone at 585-512-3550 or smalone@mccmlaw.com; or Michael F. McConville at 585-512-3517 or mmconville@mccmlaw.com.
This publication is intended as an information source for clients, prospective clients, and colleagues and constitutes attorney advertising. The content should not be considered legal advice and readers should not act upon information in this publication without individualized professional counsel.
About MCCM
McConville Considine Cooman & Morin, P.C. is a full-service law firm based in Rochester, New York, providing high-quality legal services to businesses and individuals since 1979. With over a dozen attorneys and a full paralegal support staff, the firm is well-positioned to right-size services tailored to each client. We are large enough to provide expertise in a broad range of practice areas, yet small enough to devote prompt, personal attention to our clients.
We represent a diverse range of clients located throughout New York State and New England. They include individuals, numerous manufacturing and service industry businesses, local governments, and health care professionals, provider groups, facilities and associations. We also serve as local counsel to out-of-state clients and their attorneys who have litigation pending in Western New York courts. For more information, please contact us at 585.546.2500.