Not too long ago, the government gave high-net-worth families a surprising gift — and now, it’s about to take it back. It came wrapped inside the Tax Cuts and Jobs Act of 2017, better known as the TCJA, and it temporarily changed the rules of the game for anyone with significant wealth.
Back in 2017, the federal estate tax exemption limit was doubled. That meant a married couple could pass on over $22 million to their heirs without paying a dime in federal estate taxes. It was a game-changer. But like most things that sound too good to last… this one came with an expiration date.
As it stands today, the clock is ticking, and the current estate tax exemption is scheduled to drop back down on January 1st, 2026. For business owners, real estate investors, and anyone thinking about passing on wealth to the next generation, that’s a pretty big deal.
So what does this really mean for you? Let’s break it down in plain English.
The Estate Tax Exemption: A Brief History (and a Warning)
Before 2017, the estate tax exemption limit was around $5.49 million per person. If your estate — meaning everything you own, including your business, real estate, investments, and even life insurance — was worth more than that, the IRS would want up to 40% of everything above the limit.
Then came the TCJA. Suddenly, that exemption more than doubled to over $11 million per person. Adjusted for inflation, in 2024 the number stands at $13.61 million per person, or $27.22 million per couple. That means most small and mid-sized business owners were comfortably in the clear.
But come 2026, that exemption will fall back to pre-TCJA levels, adjusted for inflation — expected to be around $6 to $7 million per person. For many families, that’s going to put them right back in the IRS’s crosshairs.
And that’s where things get tricky.
What Happens When the Exemption Drops?
Let’s use a simple example.
Imagine you built a thriving business over the last two decades. Between your company, your home, some rental properties, and a brokerage account, your estate is worth $10 million. That’s well below today’s $13.61M exemption, so you wouldn’t owe any estate tax if you passed away in 2024.
Now fast forward to 2026 — the exemption drops to $6.5M. That same $10M estate would be $3.5 million over the limit, and the IRS could take up to 40% of that excess – or $1.4 million – before your family sees a dime.
You didn’t make a mistake. You didn’t do anything wrong. But if you didn’t plan, you’ve now exposed your legacy to a brutal estate tax bill.
That’s why this matters now… not later.
Can the Government Change Its Mind Again?
Yes, and they just might.
Whether the exemption really drops in 2026 will depend on how Congress and the White House emphasize this during this election cycle. If current trends hold and no action is taken to extend the TCJA’s provisions, the exemption will sunset automatically.
However, tax policy tends to be deeply political. Some lawmakers want to make the TCJA permanent. Others want to slash the exemption further, with some proposals suggesting $3.5 million per person as a new limit.
And let’s not forget, estate tax isn’t just about federal law – states like New York and Oregon have their own estate or inheritance taxes, often with much lower exemption limits.
So while we can’t predict exactly what the government will do, we do know that the current rules expire January 1, 2026… unless Congress acts before then.
Should You Panic or Prepare?
There’s no need to panic, yet. But… it would be a mistake to wait until 2025 to act.
Here’s why: many of the most effective estate tax strategies require time to set up properly. Tools like irrevocable trusts, family limited partnerships, and gifting strategies must be tailored carefully to your situation. And once the law changes, it may be too late to act without serious tax consequences.
Here’s a simple metaphor. If you’re on a sinking ship, it’s better to start building your lifeboat now, not when the water is already rising.
Many business owners I work with think estate planning is only for billionaires. That’s simply not true. If your net worth is above $6 million (or even close) this law will affect you.
This isn’t just about avoiding taxes. It’s about preserving what you’ve worked a lifetime to build… so your kids, grandkids, or causes you care about benefit, not the government.
So, What Should You Do Right Now?
Start with clarity. Do you know your current net worth? Have you had a recent valuation done for your business or investment properties?
Next, talk with a tax strategist and estate planning attorney – together. The best strategies often cross over between tax code and legal structures, and a siloed approach can leave costly gaps.
Consider strategies like:
- Gifting assets while the exemption is high
- Using Intentionally Defective Grantor Trusts (IDGTs) to freeze asset values
- Moving assets into Irrevocable Life Insurance Trusts (ILITs)
- Establishing Spousal Lifetime Access Trusts (SLATs)
- Shifting growth assets out of your estate today, while values are low and exemption limits are high
These aren’t cookie-cutter solutions. They’re powerful tools when used correctly — and dangerous if misapplied. The key is to match the strategy to your specific goals.
What Might a New Administration Do?
This is where things get political. A Republican-controlled administration might push to extend the higher estate tax limits permanently. On the other hand, a Democratic-led government may view the estate tax as a tool for wealth redistribution and aim to lower the exemption even further – or raise the tax rate above 40%.
There have even been whispers about eliminating certain types of trusts, cracking down on valuation discounts, and taxing unrealized gains at death. Whether these changes gain traction depends on election results and budget pressures.
For you, that means staying informed and being proactive. Hope is not a strategy — especially when it comes to preserving generational wealth.
Final Thoughts: Legacy or Liability?
At the end of the day, the estate tax isn’t just about numbers… it’s about legacy.
The question isn’t whether your estate is big enough to worry about. The real question is: Have you done enough to protect what you’ve built?
With proper planning, you can keep your business in the family, support the causes that matter to you, and leave behind a legacy that isn’t eroded by taxes. But without it, you risk turning your life’s work into a liability.
The estate tax exemption is changing – whether you’re ready or not. Let’s chat about it now instead of waiting.
Welcome to the New Age of Accounting. Let’s begin.
Chris is the Managing Partner at Weston Tax Associates, a best-selling author, and a renowned tax strategist. With over 20 years of expertise in tax and corporate finance, he simplifies complex tax concepts into actionable strategies that drive business growth. Originally from Sweden, he now lives in Florida with his wife and two sons.
