One of the most significant estate tax changes in decades is scheduled to take effect on January 1, 2026 — unless Congress acts. The elevated federal estate tax exemption, doubled by the Tax Cuts and Jobs Act of 2017, is set to revert to approximately $7 million per person (inflation-adjusted). For California families with estates between $7 million and $27 million, the planning window is closing.
The federal estate tax exemption is currently $13.61 million per individual (2024). Married couples with proper planning can shield up to $27.22 million. The top rate on taxable estates is 40%.
If the sunset occurs as scheduled, the exemption drops to approximately $7 million per person — roughly half its current level. For a married couple with a $20 million estate:
This is not a hypothetical for wealthy families — it's a real $2.4 million difference depending on whether planning is completed before or after the deadline.
The IRS has confirmed (in Revenue Procedure 2019-13) that gifts made while the elevated exemption is in effect will not be "clawed back" if the exemption later decreases. This means families can make large gifts now to use the elevated exemption and permanently lock in the tax savings — even if the exemption later reverts.
But making a large taxable gift requires time: legal documentation, asset valuation, trust drafting, and sometimes business interest or real estate transfers. These cannot be done overnight, and the estate planning community is already seeing significant demand as the year progresses.
A SLAT allows one spouse to make a large gift to an irrevocable trust for the benefit of the other spouse — removing the assets from the taxable estate while still allowing the beneficiary spouse indirect access to trust assets. Couples can make reciprocal SLATs, though they must be carefully structured to avoid the reciprocal trust doctrine.
Large gifts to irrevocable trusts for children — structured as intentionally defective grantor trusts (IDGTs) — remove assets from the taxable estate while allowing the grantor to continue paying income tax on trust income (an additional tax-free gift to the trust beneficiaries).
Maximizing annual exclusion gifts ($18,000 per recipient in 2024) removes assets from the estate incrementally without using the lifetime exemption. For families with many potential recipients, this can move substantial sums over time.
Many families have outdated estate plans drafted when exemptions were lower. Plans drafted before 2018 may not be optimized for current exemptions. An estate plan review — and update if warranted — is essential before the sunset deadline.
California has no state estate tax, but the stepped-up basis consideration is critical: large gifts now avoid estate tax but carry over the donor's basis. For California families with highly appreciated property — homes, business interests, investment accounts — the capital gains cost of giving up the stepped-up basis may offset or exceed the estate tax savings. This calculation requires careful modeling with a CPA alongside estate tax planning.
Estate planning attorneys are booking quickly as the sunset deadline approaches. If your estate may exceed $7 million per person, schedule a consultation now to evaluate your options while the full planning window remains open.
General information only. Estate tax planning is highly complex. Consult a licensed estate planning attorney and CPA for guidance specific to your estate and situation.
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