Preparing for the tax sunset

Preparing for the tax sunset

What is the Sunset?

The Tax Cuts and Jobs Act of 2017 (TCJA) enacted numerous changes to the tax code. However, these changes are not permanent, and are set to expire December 31, 2025. Unless Congress acts to make the TCJA permanent, we will see the code revert to previous regulations.

Why does this matter? The new laws temporarily doubled the Federal Estate Tax Lifetime Exemption to $11.2MM, from $5.6MM. Adjusted for inflation, the current Lifetime Exemption amount is $13.61MM meaning, an individual can gift during life or at death $13.61MM of assets without facing Federal Estate Taxes. Without action from Congress, we can expect this to revert back to the original 2016 value increased with inflation – about half the current Exemption amount. Without the proper estate documents in place, individuals with taxable estates can expect to pay close to 40% on assets in excess of the exemption amount. Without sufficient liquidity, business owners or individuals with large real estate holdings could be forced to sell assets to pay the IRS.

While some individuals may be less concerned about the tax implications passed to their beneficiaries upon their death, there is a great opportunity to utilize your Lifetime Exemption prior to the Tax Sunset, potentially saving your estate and beneficiaries millions down the road.

Use it or Lose It

If an individual does not act to utilize their Lifetime Exemption, they lose the opportunity to do so if the TCJA sunsets. On the flip side, if you utilize your full exemption of $13.61MM and the TCJA does sunset, the IRS cannot currently claw back any of those taxes you would have otherwise owed but for the TCJA.

In our experience, estate planning could take several months to over a year to complete. Decisions must be made on which assets to gift/sell to a trust, who will be the beneficiary(s), and who will be trustee(s). All of this can be overwhelming to decision makers. Additionally, it can be expected that estate attorney’s will be overwhelmed with clients trying to shelter assets up until the deadline.

A Flexible Strategy

One of the reasons most hesitate to plan for the tax sunset is that they are not ready to give away assets without knowing what’s going to happen in 2026. A loan to trust strategy is an option for these individuals that can provide flexibility regardless of what Congress decides.

The individual (grantor) establishes an irrevocable trust and loans assets to it in exchange for a promissory note. The trust becomes the owner of the assets, and the individual is owed the note plus interest, freezing the estate.

The minimum rate that can be set on the promissory note is the current AFR Rates. The goal is for assets owned in the trust to have a growth rate in excess of the AFR rate, effectively removing this growth from the Federal Estate Tax System.

This gives the grantor flexibility. As we approach 2026 we will have a better idea of what Congress will do. If they do not act, the grantor could forgive the entire amount of the note, ensuring they use the entire $13.61MM Lifetime Exemption before it is cut in half. If Congress upholds the TCJA, no harm is done and growth of trust assets can continue to be removed from the federal estate tax system.

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Waldron Private Wealth (“Company”) is an SEC registered investment adviser with its principal place of business in the Commonwealth of Pennsylvania. Company may only transact business in those states in which it is registered, or qualifies for an exemption or exclusion from registration requirements. For information about the Firm’s registration status and business operations, please consult Waldron’s Form ADV disclosure documents, the most recent versions of which are available on the SEC’s Investment Adviser Public Disclosure website at

This material is for informational purposes only and is not intended to be an offer, recommendation or solicitation to purchase or sell any security or product or to employ a specific investment strategy. Due to various factors, including changing market conditions, aforementioned information may no longer be reflective of current position(s) and/or recommendation(s). Moreover, no client or prospective client should assume that any such discussion serves as the receipt of, or a substitute for, personalized advice from Company, or from any other investment professional. Investing involves risk, including the potential loss of money invested. Past performance does not guarantee future results. Asset allocation and diversification do not guarantee a profit or protect against loss. Company is neither an attorney nor an accountant, and no portion of the web site content should be interpreted as legal, accounting or tax advice. 


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