Article

Navigating the uncertain future of the estate/gift and GST exemptions

Should you use it or lose it or wait and see?

May 22, 2025

Key takeaways

On Jan. 1, 2026, the lifetime exemption is scheduled to revert from $13.9 million to about $7 million

House Republicans propose to permanently increase the lifetime exemption to $15 million, adjusted for inflation

Depending on your net worth and cash flow needs, you still may want to take action now

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Policy Private client services Tax policy

This article, originally published Sept. 19, 2024, has been updated to reflect that Republicans in Congress are advancing a comprehensive set of tax proposals and revenue raisers that includes estate and gift tax exemption provisions.

For estate, gift, and generation-skipping transfer (GST) tax exemptions, important changes are coming at the end of 2025. Republican majorities in Congress are pursuing unified estate and gift tax exemption amounts permanently increased to an inflation-indexed $15 million for taxable years beginning after Dec. 31, 2025. Enacting them would avoid the scheduled drop to pre-2018 levels, set a new floor for future increases and establish permanence after years of looming change.

That may sound reassuring, but beware the potential trap of so-called permanence. After all, you don’t need to look beyond this proposal to see how the tax policy pendulum can swing based on the latest election results.     

Estate planning is inherently complex, and that’s especially true because estate, gift, and generation-skipping transfer (GST) tax exemptions are not static—no matter whether they’re enacted as permanent. They are subject to legislative changes that can significantly alter the landscape of wealth transfer planning.

This uncertainty makes it difficult for individuals to make informed decisions about their estate plans, as the rules governing these exemptions may change, affecting the tax liabilities associated with transferring wealth.

Before the end of 2025, there is a window of opportunity for individuals to make large gifts or other transfers. That window may remain open for the foreseeable future, depending on the outcome of Republican proposals. The long-term picture, however, always lacks clarity to some degree, so it's crucial to weigh the potential benefits of gifting against the risks. Consider your long-term financial goals and legacy aspirations when making these decisions.

What are the estate, gift and GST exemptions?

The lifetime exemption is the amount that individuals can transfer during their lifetime or at death to others without incurring a 40% tax.

For 2025, the lifetime exemption amount is $13.99 million per individual, or $27.98 million for a married couple. In addition to the estate and gift taxes, a separate generation-skipping transfer tax is levied upon amounts that skip a generation with similar exemption and phaseout timelines.

What will happen after Dec. 31, 2025, if Congress does not act?

Absent any legislative action, the current temporarily increased exemptions are set to revert to pre-2018 levels on Jan. 1, 2026, adjusted for inflation. This means the exemptions will drop to amounts estimated to be around $7 million per individual or $14 million for a married couple. Final regulations issued by the IRS generally ensure that there will be no “clawback” for gifts in excess of the decreased exemption made prior to Jan. 1, 2026.

This is not the first time these exemptions have been on the brink of reduction. In 2012, the exemptions were set to expire, but Congress intervened at the last minute and ultimately extended the increased exemptions.

Some individuals who made gifts in 2012 solely for the purpose of utilizing the exemption later regretted their decision when the higher exemptions were ultimately extended. Learning from our past, it is important to weigh whether you would regret making certain transfers if the temporarily increased exemptions are made permanent.

What key changes should I anticipate in upcoming tax reform?

The bill proposes to permanently increase the unified estate and gift tax exemption amounts to an inflation-indexed $15 million for taxable years beginning after Dec. 31, 2025. Extending or increasing the exemption amounts, either in full or in part, is a priority of Republicans, including President Donald Trump. However, doing so would cost around $200 billion, according to multiple nonpartisan estimates. That significant price tag is likely to attract robust debate during this season of tax reform.

In addition to the proposed increases, Senate members have discussed a potential repeal of the estate tax altogether. While the specifics of such a proposal and the likelihood of success remain uncertain, it is crucial to stay informed and prepared for any changes that may arise.

What can you do to prepare?

Given the uncertainty surrounding the future of the estate/gift and GST exemptions, it’s crucial to consider your options based on your current net worth and future financial plans. Here’s a general guide based on your net worth (per individual):

If you decide to take advantage of the current higher exemptions, it’s essential to act now.

Estate planning requires careful planning and timely execution. Depending on the circumstances, there may be multiple strategies to review with tax professionals, attorneys, and other advisors. An appraiser may need to value assets before the transfer.

In addition, an attorney may need to draft several estate planning and transfer documents. The closer we get to Dec. 31, 2025, the more difficult it will be to ensure that a holistic wealth transfer strategy is implemented based on your goals and circumstances.

Consider taking the following actions:

  • Review your estate planning documents to ensure they are in line with your goals.
  • Gift in accordance with your annual exclusion and have your prior gifting reviewed to determine the available remaining exemption.
  • Review assets for growth and potential to transfer.
  • Engage advisors to review your gift plans, provide recommendations and draft documentation.
  • Monitor your gift plans and update accordingly for any changes in your wishes, tax law, assets and family members.

Establishing trusts, such as irrevocable grantor trusts, can be an effective strategy for transferring wealth. However, there has been recent legislation and proposals to limit or eliminate the benefits of certain types of trusts, such as grantor trusts, including grantor retained annuity trusts. While there have been discussions and proposals, the specific details and the likelihood of these changes are uncertain.

The uncertainty surrounding the future of the estate/gift and GST exemptions necessitates proactive and informed planning. You can take preparatory steps—such as funding a trust to which you later sell assets, or executing documents and funding with a very small gift—in order to be ready to execute your estate planning strategies when there is more certainty. By understanding your current financial situation and potential legislative changes, you can make strategic decisions to protect your wealth and ensure a smooth transfer to your beneficiaries.

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