Under the Tax Cuts and Jobs Act signed into law on Dec. 22, 2017, the exemption from federal gift, estate and generation-skipping transfer tax is increased to $10 million, indexed for inflation, for decedents dying, gifts made and generation-skipping transfers made after 2017 and before 2026. This provision effectively raised the exemption on Jan. 1, 2018, to approximately $11.2 million per person, which is the largest exemption from gift, estate and generation-skipping taxes in the history of the federal transfer tax system.

The increased exemption amount expires on Dec. 31, 2025, after which the exemption will return to $5 million per person, indexed for inflation. For 2026, the amount is estimated to be approximately $6.5 million. Future legislation, however, could change the exemption prior to 2026.

The temporary substantial increase in the exemption amount for gift and generation-skipping transfer tax purposes presents significant wealth transfer opportunities for clients who own assets whose value is anticipated to appreciate, such as closely-held business interests. The increase in the exemption amount may also impact the disposition of assets under formula provisions in existing estate plans resulting in unanticipated alteration of a client’s estate.