Estate, Gift, and GST Taxes: What You Need to Know About the Upcoming Sunset and Proposed Legislation
As we approach 2026, significant discussions are underway regarding the future of federal estate, gift, and generation-skipping transfer (GST) taxes. The current high exemptions established under the Tax Cuts and Jobs Act (TCJA) of 2017 are set to expire at the end of 2025. However, recent legislative proposals suggest that these higher exemptions may not just be extended but could become permanent, at least until Congress takes future action to change the law again.
What Are Estate, Gift, and GST Taxes?
Before diving into the legislative proposal, it is important to understand what estate, gift, and GST taxes are:
Estate Tax: A tax on the transfer of assets at death.
Gift Tax: A tax on the transfer of assets during an individual's lifetime without receiving the full fair value of the assets in return.
GST Tax: A tax on the transfer of assets to a recipient who is two or more generations below the donor, such as a grandchild or more remote descendant of the donor or an unrelated individual who is more than 37½ years younger than the donor.
The Current Law and the 2026 “Sunset”
Under the 2017 Tax Cuts and Jobs Act (TCJA), the federal estate, gift, and GST tax exemptions were temporarily doubled, allowing individuals in 2025 to transfer up to $13.99 million and married couples up to $27.98 million without incurring federal estate, gift, or GST taxes. As a result, most Americans do not have to pay these taxes. But here’s the catch: these exemptions are scheduled to “sunset” on December 31, 2025. Therefore, on January 1, 2026, the exemptions will revert back to the lower exemptions that were in place (indexed for inflation) when the TCJA was enacted in 2017 unless Congress intervenes. Under the current law’s sunset, the exemptions are estimated to drop to approximately $7 million for individuals and $14 million for married couples in 2026, absent Congressional action to change the automatic reversion.
Proposed 2025 Legislation
The recent proposals approved by the House Ways and Means Committee aim to make the current high exemptions “permanent” (although no law is ever truly permanent). The goal is to avoid the scheduled sunset and maintain the more favorable, higher exemption levels. The proposals increase the estate, gift, and generation-skipping tax exemptions to $15 million in 2026, adjusted for inflation.
Implications for Estate Planning
The federal estate, gift, and GST tax laws are in a period of potential transition. While current proposals would extend the generous exemptions created by the 2017 tax law, these proposals are still in the legislative process and have not yet been enacted into law. While the outlook is promising, the final outcome remains uncertain. It is, therefore, important to conduct your estate planning accordingly, stay informed about legislative developments, and work with experienced estate planning and financial advisors to navigate the complexities of the evolving tax laws and develop strategies tailored to your situation.