As the year 2026 approaches, a significant shift is anticipated in the federal estate tax exemption, with implications for estate planning and wealth transfer strategies. This shift may be influenced by the outcome of the 2024 U.S. presidential election, making it crucial for individuals to understand how these factors might impact their financial futures.

The Estate Tax Exemption and Its Scheduled Reduction

Currently, the federal estate tax exemption stands at $13.61 million per individual, or $27.22 million for a married couple. This high exemption level was established by the Tax Cuts and Jobs Act (TCJA) of 2017, which temporarily increased the exemption from around $5 million per person (adjusted for inflation) to its present levels. However, this provision is set to “sunset” on December 31, 2025. Absent legislative action, the exemption will revert to pre-TCJA levels, approximately $7 million per person (adjusted for inflation).

The reduction of the exemption will mean that individuals with estates valued above this threshold will face higher estate tax liabilities. With the high exemption level, many estates are currently shielded from federal estate taxes, but a lower exemption will increase the taxable portion of those estates, potentially leading to a higher estate tax burden.

The Impact of the 2024 Presidential Election

The outcome of the 2024 presidential election could significantly influence the future of the estate tax exemption. Here’s how:

1. Potential Policy Changes: The president elected in 2024 will have a significant influence on tax policy, including estate taxes. If a candidate with a stance favoring lower estate taxes wins, they might advocate for legislation to either extend the current high exemption levels or make permanent changes to the tax code. Conversely, a candidate supporting higher taxes might push for reductions or restrictions on the exemption.
2. Legislative Agendas: The winning candidate’s legislative agenda will also shape the debate over the estate tax exemption. A president with a mandate for tax reform could prioritize changes to the estate tax code, either aligning with their campaign promises or responding to Congressional pressures.
3. Congressional Composition: The presidential election results will also affect Congressional dynamics, which play a crucial role in shaping tax policy. A president’s party affiliation can influence the likelihood of passing proposed changes to estate tax laws. Therefore, the interplay between the executive and legislative branches will be vital in determining the future of the estate tax exemption.

Planning for the Future

Given the uncertainty surrounding the estate tax exemption and the potential for significant changes based on the 2024 election results, individuals should consider the following steps:

1. Consult with Estate Planning Professionals: Engage with estate planning attorneys and financial advisors to review your current estate plan. They can project the growth of your estate and provide guidance on how a potential reduction in the exemption might affect your estate. Together, they can recommend strategies to mitigate potential tax impacts. Strategic moves made before the end of 2025 could help minimize estate tax liability and maximize the amount of wealth passed to beneficiaries. Rapp & Krock offers estate tax memorandums to analyze your estate tax liability and what strategies you can take.
2. Consider Gifting Strategies: To take advantage of the current high exemption levels, individuals may consider gifting assets to beneficiaries before the exemption level decreases. Individuals can strategically transfer significant amounts of wealth to beneficiaries while the exemption is high, potentially reducing the size of their taxable estate.
3. Monitor Legislative Developments: Stay informed about potential changes in estate tax laws following the 2024 election. Keeping abreast of legislative proposals and outcomes will help you make timely adjustments to your estate plan.
4. Evaluate Trusts and Estate Planning Vehicles: Explore estate planning tools such as trusts, which can help manage and protect assets. For instance, irrevocable trusts can remove assets from the taxable estate, while charitable remainder trusts can provide tax benefits and support philanthropic goals. Trusts can be effective in minimizing estate tax liability and ensuring that your wishes are carried out.

As the sunset date for the current exemption approaches, the interplay between political changes and tax policy will shape the future landscape of estate taxes. By staying informed and proactive, individuals can navigate these uncertainties and implement strategies to safeguard their wealth and achieve their estate planning goals.