During President Trump’s first term, the Tax Cuts and Jobs Act (TCJA) doubled the federal estate and gift tax exemption, which is approximately $13.6 million per individual in 2024. Without further action, these provisions are set to expire at the end of 2025, reducing the exemption to pre-2018 levels of around $7 million. With Republican majorities in both the House and Senate, former President Trump is in a favorable position to push for a permanent extension of the TCJA provisions. However, no legislative outcomes are guaranteed, and the uncertainty necessitates proactive estate planning now.[1][2][3]

The clock is ticking on historically high exemptions, and waiting to see if extensions materialize could mean missing valuable opportunities. Even with supportive political conditions, legislative delays or modifications are always a possibility. Acting now ensures taxpayers can capitalize on the current exemptions before they potentially decrease.

The IRS has provided clarity on “clawback” concerns: lifetime gifts made under the higher exemption will not be subject to retroactive taxation if the exemption amount decreases. This provides a unique window for high-net-worth individuals to transfer substantial wealth to heirs while minimizing tax liabilities. Taxpayers and advisors should consider these actionable strategies before the sunset:

• Utilize the Lifetime Gift Exemption: The current $13.6 million exemption allows significant tax-free transfers. Gifting assets now can reduce the size of your taxable estate and lock in today’s higher thresholds.
• Establish Trusts for Flexibility and Control: Trusts, such as Spousal Lifetime Access Trusts (SLATs) and Grantor Retained Annuity Trusts (GRATs), are effective tools to transfer wealth while retaining flexibility. These structures can provide financial benefits for heirs while shielding assets from future estate taxes.
• Annual Gifting: Don’t overlook the annual gift tax exclusion, currently $17,000 per recipient in 2024 ($34,000 for married couples). This strategy allows incremental wealth transfers without dipping into your lifetime exemption.
• Review and Update Estate Plans: Estate plans created before 2018 may not account for the TCJA’s changes or its impending sunset. Work with advisors to ensure your plan reflects the current legal landscape and your goals.

President Trump’s re-election brings the possibility of extending the TCJA provisions or making them permanent. However, legislative outcomes remain unpredictable. Republicans will likely prioritize these extensions, but bipartisan negotiations and shifting economic conditions could impact their feasibility.

Other proposed reforms under Trump’s second term include increasing the Child Tax Credit up to $5,000 per child up from $2,000,[iv] eliminating federal income tax on Social Security benefits,[v] and potentially repealing the $10,000 State and Local Tax (SALT) deduction cap. While these may not directly affect estate planning, they underscore the need for vigilance in monitoring legislative developments.

In conclusion, the TCJA’s provisions have created unprecedented opportunities for tax-efficient wealth transfers, but time is running out. Even with a potential extension under a second Trump administration, the prudent approach is to act now to secure these benefits. Work closely with advisors to craft a comprehensive plan that maximizes the current exemptions and prepares for any legislative outcomes.

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[1] Joseph Pari Devon Bodoh, 2024 election observations: The future of tax policy under a second Trump administration  Weil Tax BLOG (2024), https://tax.weil.com/features/2024-election-observations-the-future-of-tax-policy-under-a-second-trump-administration/ (last visited Jan 19, 2025).

[2] Plan ahead: Potential Tax Reform in the second Trump presidency, Davis Polk (2024), https://www.davispolk.com/insights/client-update/plan-ahead-potential-tax-reform-second-trump-presidency (last visited Jan 19, 2025).

[3] Trina Paul, Advisors say wealthy Americans need a plan as election set to affect estate tax policy Investopedia (2024), https://www.investopedia.com/wealthy-americans-estate-tax-policy-election-8737102 (last visited Jan 19, 2025).

[iv] Joy Taylor, A look at Donald Trump’s tax plans Kiplinger.com (2024), https://www.kiplinger.com/taxes/donald-trumps-tax-plans-2024 (last visited Jan 19, 2025).

[v] Id.