As 2024 winds its way down, substantial changes to federal tax rates and exemptions could be on the horizon. The potential sunsetting of key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and possible capital gains tax changes make this a critical moment. Here are two reasons you should call your Trusts and Estates lawyer right now.
Key provisions of TCJA set to sunset
Only one thing is certain with the presidential election looming – uncertainty. That’s particularly true of what will happen to the gift and estate tax exemptions. The 2017 Tax Cuts and Jobs Act (TCJA) doubled the federal estate, gift, and generation-skipping transfer tax exemptions. Adjusted for inflation, these exemptions in 2024 jumped to more than $13M for individuals, and more than $27M for married couples.
In January 2025, this federal lifetime exemption amount will increase for inflation one more time. However, the historically high lifetime exemption amounts under the TCJA are set to expire, or “sunset” December 31, 2025. Without new legislation, the exemption as of January 2026 could drop to approximately $7,000,000 per person. This drastic reduction could increase the tax liability for estates exceeding the new threshold, likely doubling the number of taxable estates across the U.S.
Furthermore, other significant individual tax provisions that are also set to sunset at the end of 2025 include:
- The 37% maximum individual tax rate (reverting to 39.6%)
- The $10,000 limitation on the deductibility of state and local taxes
- Modifications to the alternative minimum tax (AMT) rules.
Capital Gains Changes and Stepped-Up Basis Looming
Another dark cloud on the horizon is the potential overhaul of capital gains taxes and the elimination of the stepped-up basis at death. Depending on the outcome of the 2024 election, legislation could pass that impacts how assets are transferred to heirs. If the stepped-up basis is eliminated, inheriting assets could result in immediate capital gains taxation, especially for estates with high-value properties or investments.
For many, this would mean a substantial financial hit, particularly if current exemptions and tax structures are not leveraged before the law changes. This potential change adds urgency to reviewing your estate plan now.
Who’s affected?
In terms of the gift and estate tax exemptions, an estimated 9,000 estates in the U.S. could be impacted if those provisions are allowed to sunset. This change will affect high-net worth individuals, business owners, professionals and families, particularly those who have experienced significant growth in wealth over recent years.
Don’t predict, make a plan
It’s always a challenge to predict what Congress or the next president will do, especially with the TJCA sunsets and potential capital gains reforms on the table. Rather than speculating, focus on what can be done now. This is the perfect time to explore gifting strategies, establish irrevocable trusts, or freeze the value of your assets to lock in today’s high exemption levels before they diminish.
We recommend contacting an estate planning attorney to review your current assets, discuss available exemptions, and identify strategies that will help you maximize your estate planning before the end of 2024.
Before we walk off into the sunset …
If you have any questions or need advice on how to take advantage of these opportunities or other strategies regarding your estate, please contact Jeffrey Rambach, at (office) 312-620.9300, jeffrey.rambach@practus.com, your Practus, LLP attorney or your estate planning counsel.
Disclaimer: Information contained in this alert is for the information, general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem, and it should not be substituted for legal advice, which relies on a specific factual analysis. Moreover, the laws of each jurisdiction are different and are constantly changing. This information is not intended to create, and receipt of it does not constitute, an attorneyclient relationship. If you have specific questions regarding a particular fact situation, we urge you to consult the author of this publication, your Practus, LLP attorney or other competent legal counsel.
