What to Know Before the Tax Cuts and Jobs Act Provisions Sunset
The Tax Cuts and Jobs Act (TCJA), enacted in 2017, brought significant changes to estate and gift tax laws in the United States. Key provisions included doubling the estate and gift tax exemption from approximately $5.5 million to over $11 million per individual (indexed for inflation). This change provided substantial estate planning opportunities, allowing individuals to transfer larger amounts of wealth tax-free during their lifetime or at death.
However, the TCJA included a sunset provision for these increased exemptions, meaning they are set to expire after December 31, 2025. Unless Congress acts to extend these provisions, the estate and gift tax exemptions will revert to pre-TCJA levels, adjusted for inflation. This would result in a significant decrease in the exemption amounts, potentially back to around $6 million per individual.
For estate planning purposes, this sunset creates an opportunity for high-net-worth individuals and families. Those considering large gifts or planning for wealth transfer strategies may find it advantageous to act before the sunset date to take full advantage of the current higher exemption amounts. Strategies such as lifetime gifting, grantor retained annuity trusts (GRATs), Donor Advised Funds and other wealth transfer techniques can be particularly effective under the current tax laws.
At Scharf Investments, we are closely monitoring legislative developments and advising clients accordingly. While the sunset isn’t set to take place until end of 2025, uncertainty remains regarding whether Congress will extend the higher exemptions or allow them to revert. We encourage individuals to consult with their wealth advisor and estate planning attorneys to develop and implement strategies that align with their long-term wealth transfer goals amidst the changing legislative landscape.