Since the federal estate tax exemption has risen to $11.18 million per individual under the 2017 Tax Act (with this amount doubling for married couples), many individuals believe that they require only very simplistic estate planning, or that they do not require any estate planning at all.
Clients should understand that the exemption amount under the 2017 Tax Act is not permanent; rather, in 2026, the exemption will return to the levels that were in place before 2017, adjusted for inflation, essentially cutting the current exemption amount in half. Additionally, depending on which political party is in power in Washington, the exemption amount could be reduced even further, with some Democrats having indicated that they will seek to lower the exemption amount to $3.5 million per individual ($7 million for married couples), as well as possibly increasing the estate tax rates.
Despite President Trump’s intent to make the 2017 Tax Act provisions permanent, if history has taught us anything, it is that even so-called permanent provisions can be revised and amended. A new Congress and a new President can essentially make any changes they want to undo a permanent act.
In that respect, it is imperative that individuals review their finances, as well as their current estate planning documents and plan accordingly. Even though it may presently appear to many individuals that they do not need estate planning (sophisticated or otherwise) because of the high estate tax exemption amount, they must remember that if they do not have proper planning in place if/when the exemption amount decreases in 2026, there is a very real possibility that they could be subject to a hefty estate tax bill.