How the Tax Cuts and Jobs Act (TCJA) helps Americans preserve generational wealth – and what you need to know about tax law changes in 2026
The Tax Cuts and Jobs Act of 2017 brought many changes to the federal tax code. It reduced marginal tax rates for Americans in most tax brackets. It increased certain tax credits. It changed rules related to depreciation and excess business losses for corporations, sole proprietors, partnerships, and 1099 contractors who pay business taxes. It increased the standard deduction, reducing the need for most Americans to itemize taxes to claim deductions that will reduce their tax bill. And, notably, it changed many rules related to estate and gift taxes, enabling more Americans to preserve generational wealth and pass on more of their inheritance.
Now that many provisions of the TCJA will be expiring in 2025, it’s important to revisit your estate planning and wealth management strategies if you are an ultra-high-net-worth individual who wants to leave a financial legacy for your children, grandchildren, and future generations. Here’s what we know now and how it can help you with estate planning in 2025 and beyond.
Changes to Estate Taxes Under the TCJA
Many provisions of the TCJA sunset, or expire, at the end of 2025, which means you won’t be able to take advantage of a larger standard deduction and many tax benefits on your 2027 tax returns. Others sunset even later, in the case of some business tax laws. Changes to estate taxes and gift taxes sunset at the end of 2025, and primarily affect high-net-worth families.
This means you have time to plan ways to pass on generational wealth to your children and grandchildren without saddling them with large tax bills after you die. Still, it’s wise to speak with a financial advisor and tax professional now, before the tax laws sunset.
There is a chance that new tax laws between now and the end of 2025 will further change inheritance taxes and the way you want to manage your estate to preserve generational wealth. But it’s a good idea to know what could be coming so you can prepare now.
How the TCJA Benefits High-Net-Worth Families
The Tax Cuts and Jobs Act expanded the thresholds for transferring gifts or an estate so that high-net-worth individuals and families can transfer generational wealth with fewer tax ramifications.
The estate tax exemption rate under TCJA rose to $13.61 million for individuals and $27.22 million for married couples. That means family members or friends can gift that money over their lifetime or transfer the money upon their death without the heirs having to pay taxes on that amount. If the TCJA sunsets as planned, the lifetime gift threshold will drop to roughly $7.5 million for individuals and $14.5 million for couples, depending on inflation.
In addition to estate taxes and gift taxes, the federal government also imposes generation-skipping transfer taxes when high-net-worth individuals transfer money to grandchildren or other heirs. This prevents grandparents from circumventing the estate tax by leaving money to future generations. The GST tax exemption limit also rose to $13.61 million in 2024 under the TCJA. It will revert to pre-2017 levels at the end of 2025.
Wealth transfers over the threshold are subject to marginal tax rates of 18% to 40%, so it’s important for individuals to plan ahead and maximize wealth transfer before the favorable tax laws sunset.
Annual Gift Tax Exemption: Know the Beneficiary Exemption Amount
In transferring money across a lifetime, donors should also keep the annual beneficiary exemption amount (BEA), currently $18,000 per year, per person, in mind. Married couples can double this exemption. This exempts any gifts below $18,000 within one year from the gift tax. The tax, and the annual exemption amount, only applies to gifts that can be used or spent immediately, so money placed in a trust does not qualify for this exemption. The annual gift tax exclusion will not sunset with the TCJA, but high-net-worth taxpayers will need to be mindful of the new lifetime gift tax threshold after 2025.
Avoiding State Estate Taxes and Inheritance Taxes
Even though the federal government has high thresholds for estate tax and gift tax exemptions, some states impose estate taxes, inheritance taxes, and gift taxes of their own.
Connecticut has a state gift tax, but other states do not. That means if you live anywhere else, you can take advantage of high thresholds for gift tax exclusions to avoid federal estate and gift taxes for your heirs. Connecticut also has an estate tax.
Reduce estate taxes by taking advantage of the federal lifetime gift tax exclusion in the following states:
- District of Columbia
- Hawaii
- Illinois
- Maine
- Maryland
- Massachusetts
- Minnesota
- New York
- Oregon
- Rhode Island
- Vermont
- Washington
Additionally, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania impose an inheritance tax, which is collected from their heirs and not deducted from the estate. Surviving spouses are exempt from inheritance taxes. Some states also exempt children, grandchildren, and other close family members, according to NOLO.com.
If you live in one of these states, it’s important to speak with a financial planner and a tax specialist to discuss investment strategies that can minimize taxes and preserve generational wealth for your heirs.
Ways to Plan Ahead for Tax Cut Sunset
If the TCJA provisions put your total cash and assets below the federal estate tax exemption level, but that will change in 2026, you can consider transferring assets to an irrevocable trust. A financial planner can help you set this up. Understand your options to help future generations build wealth from the legacy you have left them.
Facing Past Due Death Taxes?
If the death of a loved one has put you in a tax bind because they failed to plan ahead, Alleviate Tax can help you set up a payment plan or installment agreement and help you reduce interest and penalties.
FAQs
How Much Revenue Does the IRS Collect from Estate and Gift Taxes?
The estate and gift tax does not bring in substantial revenue for the federal government. According to the Congressional Budget Office, estate and gift taxes brought in just $17.6 billion in 2020, only 0.5% of total tax revenue and 0.1% of the U.S. Gross Domestic Product. This amount will rise substantially when the TCJA expires.
How much can you inherit without paying federal taxes?
You can inherit up to $13.6 million from a single estate in 2024 without being subject to taxes.
Do beneficiaries get taxed on inheritance?
Most people won’t be taxed on any inheritance. Under the Tax Cuts and Jobs Act of 2017, the first $13.6 million of an inheritance is exempt from estate taxes. That figure will drop to roughly $7.5 million in 2026 when the TCJA sunsets. Taxes on an inheritance come out of the estate and are not considered part of an heir’s income for tax purposes. The federal government does not impose an inheritance tax on heirs, but some states do.
Do I need to report inheritance money to the IRS?
An inheritance is not considered taxable income and does not need to be reported to the IRS by the heir. However, if you inherit assets such as stocks or real estate and subsequently sell those assets at a profit, you may be subject to capital gains tax.
What is the difference between estate tax and inheritance tax?
An estate tax is collected from the estate of the person who died, while an inheritance tax is collected from the heir. The federal government does not levy an inheritance tax, and the threshold for the estate tax exemption is $13.6 million in 2024, which means most people won’t have to worry about their loved one’s estate being taxed.
What will the federal estate tax exemption be in 2026?
In 2026, the federal estate tax exemption drops to roughly $7.5 million, adjusted for inflation.
