We’re all familiar with the age-old saying that only two things are certain in life: death and taxes. It’s safe to say that for most, discussing either topic isn’t exactly a delightful dinner conversation with your family. However, when these two inevitabilities in life intersect, the result can be financially painful. Failing to address the topic of death taxes through proper planning can result in a significant portion of your estate going to Uncle Sam rather than remaining within your family.

Since 2018, the estate tax has been a minor concern for taxpayers, thanks to the historically high exemption put in place by the Tax Cuts and Jobs Act of 2017. For 2023, the exemption is set at $12.92 million for individuals, and $25.84 million for married couples if a proper portability election is made. However, beginning in 2026, the estate tax exemption is scheduled to sunset to around $7 million for individuals and $14 million for married couples, once adjusted for inflation. With this lower estate tax exemption threshold, the dreaded death tax may affect many more families.

Here is an example to illustrate the potential impact of this estate tax exemption sunset:

You and your spouse have a combined net worth of $20 million. Under the current exemption, there would be no estate tax due since your combined net worth is below the $25.84 million estate tax exemption for married couples (with portability election). However, under the expected 2026 sunset exemption of $14 million, you would owe a 40% estate tax on the $6 million of net worth exceeding the exemption, resulting in $2.4 million in taxes. Yikes!

If you believe that the estate tax exemption sunset may affect you and your family, the time to start planning is now. There are many planning techniques that can be put into place in your estate planning prior to 2026 that would “lock in” the more generous estate exemption before it expires. Legislation put into place between now and 2026 could stop the exemption from sunsetting, but it’s best to be proactive and have a plan in place in case it does not.

KT’s estate and gift planning team is eager to assist you in safeguarding your wealth for the benefit of future generations, rather than paying it to Uncle Sam. Don’t wait! Contact our team to discuss your estate plan today.