The federal estate and gift tax exemption is the highest it has ever been. Under current law, you may transfer almost $14 million to anyone you wish without having to pay a dime of federal gift or estate tax. Absent any legislative changes, on January 1, 2026 the exemption will drop to one-half of its then current level. This presents a limited window of opportunity for individuals with large estates to make gifts and lock in their use of the historically high exemption before it disappears.

The estate and gift tax is a transfer levy on all the assets you own when you pass away; those may include real estate, life insurance, retirement accounts, bank accounts, brokerage accounts, business interests, and collectibles. The federal exemption is the amount you may gift during your life or transfer upon death that will not be subject to gift or estate tax. The current federal exemption amount is $13,610,000 and is projected to increase to $13,990,000 on January 1, 2025. The law sunsets on January 1, 2026, and the federal exemption will drop to about $7 million unless Congress enacts a new federal law. Transfers above the exemption amount are subject to federal estate tax at a rate of 40%.

We have been here before: In 2012, the federal law was about to sunset, which would have resulted in a decline of the exemption from $5 million to $1 million. Congress passed a law at the end of December 2012 to preserve the $5 million exemption, but it is anyone’s guess whether Congress will preserve it this time.

It is possible that Congress might pass a new law before January 1, 2026 to extend the current exemption. Between the 2024 presidential election and congressional election in November 2026, and an approaching clash over the debt ceiling, however, there is no certainty as to whether a new law will be enacted. If Congress does nothing, the exemption will plummet.

Given the uncertainty, it is critical for individuals who have large estates to assess and plan for possible changes. A number of gifting strategies can make use of the record-high exemption. Most of them are complicated, so you will need time to evaluate the options with your advisors and consider the potential impacts on you and your family. It’s worthwhile to start planning now if you want to take advantage of the exemption.

Should you consider lifetime gifts before 2026? For federal tax purposes, if your net worth is more than $7 million, then you should. Lifetime gifts are an effective method of reducing your estate and freezing the value of assets. If you live in a state that has a separate estate tax as Oregon and Washington do, the gifting of assets will also reduce your in-state taxation. Neither state has a gift tax, so residents may gift an unlimited amount of assets without incurring any state gift tax. As for the timing, a relevant factor is the amount you wish to divest. If it would be a lifetime gift of less than $5 million, then the approaching changes would not affect your ability to give it away. However, if you are considering gifting more than $5 million, the approaching changes might have an impact on your ability to bestow the funds elsewhere.

Another factor to consider for gifting prior to 2026 is the “use it or lose it” aspect of the law change. If you gift $5 million in 2024 and the exemption gets reduced to $7 million in 2026, then your unused exemption amount will be $2 million. On the other hand, if you make a gift of $10 million in 2024 and the exemption reduces to $7 million in 2026, you will not enjoy any available exemption. This year you are still allowed to transfer the extra $3 million of available exemption and save the 40% transfer tax you would have to pay if you were to make the same gift in 2026.

Talk to your attorney, financial planner, and tax advisors now to decide whether you should take advantage of one of these gifting strategies. Some require you to make the gifts over several tax years, so the available time to implement those is diminishing. Start this process as soon as possible to ensure the professional assistance you will need to complete the gifts will be available to help you.

This article summarizes aspects of the law and opinions that are solely those of the authors. This article does not constitute legal advice. For legal advice for your situation, you should contact an attorney.