Should You Update Your Estate Plan Before 2026?

With the Tax Cuts and Jobs Act (TCJA) provisions set to expire, high-net-worth families should review their estate planning documents before the end of 2025. Although it might not be your top priority, these upcoming tax changes make it essential to reassess your strategy now as the expiration of TCJA provisions will likely reduce estate and gift tax exemptions, potentially increasing your tax liability.

In this article, we’ll explore the sunsetting provisions of the TCJA, focusing on estate and gift tax exemptions as well as income tax changes, and offer strategies for updating your estate plan.

What tax laws are sunsetting in 2025?

The expiration of the TCJA provisions could significantly impact numerous parts of your financial plan, especially when it comes to managing and transferring assets to heirs. Rising income tax rates and the return of previous deduction limits may also affect choices related to retirement savings, income distribution, and charitable giving contributions.

Given these upcoming changes, it’s critical that you review and adjust your financial plans before the end of 2025. Considering strategies like Roth IRA conversions, taking advantage of current tax brackets, and exploring estate and gifting options can help minimize future tax impacts.

Estate and gift tax provisions

The Tax Cuts and Jobs Act (TCJA) of 2017 introduced several significant tax changes set to expire, or “sunset,” at the end of 2025 (Read more about the details of the TCJA Sunset). Most notably, the estate and gift tax exemption, which has been substantially increased under the TCJA, will revert to pre-2017 levels.

In 2024, the exemption stands at $13.61 million for individuals and $27.22 million for couples. However, come 2026, it’s expected to drop to approximately $6.8 million per individual and $14 million for married couples. This dramatic reduction could significantly impact estate planning for high-net-worth individuals and families.

Income tax provisions

In addition to estate tax changes, several income tax provisions will also sunset:

1. Income tax brackets will revert to pre-TCJA levels, with the top individual tax rate increasing from 37% to 39.6%
2. The standard deduction, which was nearly doubled by the TCJA, will decrease.
3. Changes to itemized deductions will revert, including:
   1. Removal of the $10,000 cap on state and local tax (SALT) deductions
   2. Restoration of the mortgage interest deduction to its previous limits
4. Personal exemptions will be reinstated
5. The child tax credit will return to its pre-TCJA structure

These changes collectively represent a significant shift in the tax landscape, potentially increasing tax liabilities for many high-earning Americans.

Why review your estate plan now?

Here are several reasons why you should update your documents for estate planning before the end of 2025:

1. Maximize current exemptions: The current high estate and gift tax exemptions present a unique opportunity to transfer significant wealth to your heirs tax-free. By acting now, you can potentially shield millions of dollars from future estate taxes.
2. Adapt to changing tax brackets: With income tax rates set to increase, particularly for high earners, it’s crucial to reassess your income strategies. This may involve accelerating income into lower-tax years or deferring deductions to higher-tax years.
3. Reevaluate deduction strategies: The return of the full state and local tax (SALT) deduction and changes to other itemized deductions could significantly impact your tax planning. Reviewing your deduction strategy now can help you optimize your tax position both before and after the changes take effect.
4. Plan for generational wealth transfer: The reduced exemptions may necessitate new strategies for passing wealth to future generations. This could include setting up trusts, family-limited partnerships (FLPs), or other vehicles to efficiently transfer assets.
5. Optimize retirement planning: The changing tax landscape may affect your retirement savings and distribution plans. Reviewing your retirement accounts and distribution strategies can help make sure you’re well-positioned for the future.
6. Update business succession plans: If you own a business, the changing tax environment could impact your succession planning. Reviewing and updating your plan now can help set everyone up for a smooth transition and minimize tax implications.
7. Evaluate charitable giving strategies: The tax changes may affect the most advantageous ways to make charitable contributions. Reviewing your philanthropic goals in light of the upcoming changes can help you maximize the impact of your giving while optimizing tax benefits.

Learn more: What is estate planning?

Estate planning strategies to consider

To help minimize future tax impacts and optimize your estate plan, consider the following strategies:

Lifetime gifting: Make the most of the current high gift tax exemption by gifting assets to heirs now. This can include:Direct gifts to individualsContributions to 529 college savings plansPayments for medical expenses or tuition directly to providers or institutions

Roth IRA conversions: Take advantage of current tax brackets to convert traditional IRAs to Roth IRAs. This can provide tax-free growth and withdrawals in retirement, potentially saving significantly on taxes in the long run.

Family Limited Partnerships (FLPs): These entities can be used to transfer business interests or investment assets to family members while maintaining control and potentially qualifying for valuation discounts.

Charitable Lead Trusts (CLTs): These trusts provide income to a charity for a set period, with the remaining assets passing to heirs. CLTs can be structured to provide both charitable and estate tax benefits, allowing you to support causes you care about while potentially reducing your estate tax liability.

Spousal Lifetime Access Trusts (SLATs): These trusts allow you to use your gift tax exemption while still indirectly benefiting from the assets through your spouse. SLATs can be an effective way to remove assets from your taxable estate while maintaining some access to the funds if needed.

These estate planning strategies are powerful tools, but they’re not one-size-fits-all solutions. Each approach has its complexities and may or may not suit your situation. To navigate these options effectively, it’s best to work with financial professionals who have experience offering estate planning advice for high-net-worth families.

When should you update your estate plan?

While the looming TCJA sunset in 2025 is a critical deadline, it’s not the only time you should consider updating your estate plan. Here are some key times when you should review and potentially update your estate plan:

1. Regularly, every 3-5 years
2. Substantial changes in asset value
3. Moving to a new state
4. Changes in your business
5. Changes in your goals or priorities
6. Before major tax law changes take effect

Remember, updating your estate plan isn’t just about reacting to changes — it’s also about proactively making sure that your plan continues to serve your needs and goals. By regularly asking yourself “When should you update your estate plan?” and acting accordingly, you can help protect your legacy and ensure your wishes are honored.

Worried about planning your estate under the TCJA Sunset provisions? Let’s talk.

The question of how often you need to update your estate planning documents should always be an important topic of discussion, but upcoming tax laws make it even more so. While a general rule of thumb suggests reviewing your estate plan every 3-5 years, the TCJA sunset in 2025 creates a more urgent timeline.

Don’t wait until it’s too late to make these crucial adjustments to your estate plan. Instead, take advantage of Avidian Wealth Solutions’s comprehensive estate planning solutions and start taking proactive steps towards helping to protect your wealth amidst future tax laws.

Schedule a conversation with one of our advisors in Houston, Austin, Sugar Land, or The Woodlands today to discuss how these changes could impact your financial plan.

More Helpful Articles by Avidian: 

• Pros and Cons of Donating Retirement Assets
• Preparing for Retirement: the CFO Transition Checklist
• How Does Tax Loss Harvesting Work?
• Required Minimum Distribution Age: When Do RMDs Start?
• What is a Custodial Account?

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