The McFarland Gould Law Line is a periodic informational report distributed by the MG Law Firm to keep its clients aware of upcoming and timely topics of general interest. This Law Line outlines the current general status of the US federal estate tax laws and the upcoming changes that are scheduled to be adopted as of January 1, 2026. 

Each U.S. citizen is presently entitled to what is commonly referred to as a lifetime gift and estate tax exemption of $13.64 million dollars. This credit can be applied by the taxpayer to any taxable gifts during one’s lifetime, with any unused balance available upon death to exempt assets of the decedent from estate tax. In light of the large exemption amount currently applicable to gift and estate taxes in 2024 of 13.64 million, only a small majority of U.S. citizens are required to pay an estate tax, due within nine (9) months of one’s death. If an estate tax is due, it is assessed at the rate of 30% of assets in the decedent’s estate exceeding $100,000.00 and increases to 40% of the estate asset value over One (1) Million dollars. A married couple is now also allowed to combine their remaining lifetime exemption to provide approximately 27 million of possible exemption. 

From the 1970’s through 2010, that lifetime gift and estate tax exemption threshold was set at an annual amount from $600,000.00 to $3,000,000.00 per individual. A significant number of decedent’s estates required payment of federal estate taxes by the heirs, often requiring frantic distressed sales of insignificant assets to meet the payment deadline date nine (9) months after date of death. 

In 2011, the gift and estate tax threshold was subject to a 15 year schedule of yearly increase to today’s 13.61 million. Unfortunately, these scheduled increases are scheduled to “sunset” as of December 31, 2025 and return to a 5 million threshold (plus cost of living adjustments since 2011). It is anticipated to be approximately 6.9 million as of January 1, 2026 unless Congress were to address this issue. Most accountants predict it will be allowed to return to this approximately 6.9 million, threshold as a means to generate additional tax revenue. 

While a majority of U.S. citizens will not have estates with the date of death valuations in excess of even that 6.9 million anticipated amount, a significant larger number of people’s estates will be exposed to these frightening tax obligations. Many of these people as well as others with potential growth of their current estates recognize that the period of time from now until December 31, 2025 provides a one-time window of opportunity to use a portion of this current gift and estate exemption amount before it is likely to be lost forever. 

Lifetime transfers or gifts of assets always have had and will probably continue to be exempt up to a yearly amount, currently $18,000.00 per calendar year, per recipient. Any excess gifts are currently taxable each year at the gift estate tax rates but the payment of that tax can be avoided by electing to apply one’s currently available lifetime tax exemption amount. 

A rare lifetime transfer and gifting opportunity is presently available to U.S. citizens to use some or all of one’s present gift and estate tax exemption to make tax free transfers and gifts. If the expected 6.9 million exemption replaces the current 13.64 million exemption beginning on January 1, 2026, that exemption reduction of approximately 6.7 million, if not used before that estate to be applied to otherwise tangible transfers and gifts is predicted to be lost forever. 

We welcome the opportunity to meet with our clients, their families and financial advisors should further information on this issue and tax planning opportunity be of interest. The content of this Law Line is meant to greatly acquaint its reader with these upcoming tax changes and the window of opportunity available to certain individuals to the meaningful steps to avoid a significant reduction to the value of one’s estate available upon death for your family and heirs.