An effective estate plan should be more than a set of legal papers stored in a folder. When carefully designed, it serves as a strategic blueprint for protecting assets, preserving wealth, and ensuring that your legacy benefits future generations. For people with moderate to high value estates, one of the most important considerations is how federal transfer taxes will potentially affect the legacy that they leave behind. At the moment, the historically high federal gift and estate tax exemption provides a rare opportunity to transfer substantial wealth with minimal tax exposure; however, this opportunity is temporary, and the clock is ticking toward a significant reduction. With that in mind, the Port St. Lucie attorneys at Kulas Crawford & Smith urge you to consider whether you, and your estate, are ready for the estate tax rollback scheduled to take place in 2026.
An Overview of the Federal Gift and Estate Tax
The federal government imposes a tax on the value of certain transfers, whether they occur during life as gifts or at death through an estate. Both categories are combined to determine the taxable amount and any tax obligation due is paid by the estate before assets are distributed to heirs or beneficiaries. While Florida does not have its own estate tax or an inheritance tax for close relatives, the federal gift and estate tax applies to all estates. Because the top federal gift and estate tax rate is 40 percent, the potential liability is substantial. For example, if an individual transfers $10 million in lifetime gifts and owns another $10 million in property at death, the total of $20 million is subject to federal tax. Without any deductions or exemptions, the federal gift and estate tax obligation would be $8 million which would significantly reduce what is ultimately passed on to family members, charitable organizations, or other beneficiaries.
Understanding the Lifetime Exemption
Fortunately, the Internal Revenue Service provides a lifetime exemption that allows a certain amount of wealth to pass free of federal gift and estate taxes. Like your taxable estate, the lifetime limit applies to both lifetime gifts and the value of the estate upon death. Although originally set at $5 million, the Tax Cuts and Jobs Act of 2017 significantly increased the exemption, pushing it to unprecedented levels. In 2025, the limit stands at $13.99 million per person, or $27.98 million for a married couple, potentially allow for the transfer of millions of dollars in assets without triggering the 40 percent tax. In the earlier example of a $20 million estate, only the $6.01 million exceeding the current exemption would be taxed, reducing the gift and estate tax bill to $2.4 million rather than $8 million. The difference underscores the importance of strategic planning while these higher limits remain available.
Preparing for the 2026 Estate Tax Rollback
Unless Congress acts to extend the current provisions, the lifetime exemption will drop sharply at the start of 2026, returning to pre-2018 amounts with an adjustment for inflation. Current estimates place the future exemption between $6.8 million and $7 million for individuals. For married couples, the combined limit will be around $13 to $14 million. Effectively cutting the exemption limit in half could have a major impact on larger estates. Our $20 million estate would now incur federal gift and estate taxes on about $13 million, producing a tax bill of over $5 million.
The Anti-Clawback Assurance
There is some good news for those who have not yet taken advantage of the high lifetime exemption. It is not too late. A common concern is whether gifts made under the higher exemption could later be taxed again once the exemption falls; however, the IRS addressed this through the “anti-clawback” regulation, which confirms that gifts made before the change will not be penalized. In other words, if you transfer assets now under the current limits, those transfers will retain the benefit of today’s exemption even after the limit is reduced.
The Time to Act Is Now
The scheduled reduction in the federal gift and estate tax exemption represents one of the most significant changes to wealth transfer planning in recent years. By making strategic transfers now and locking in today’s historically high limits, you can protect more of your wealth, minimize taxes, and create a lasting legacy for future generations.
Can We Help You Prepare for the Upcoming Estate Tax Rollback?
To learn more, please join us for an upcoming FREE seminar. If you would like assistance preparing your estate for the upcoming estate tax rollback, please contact an experienced Port St. Lucie estate planning attorney at Kulas Crawford & Smith by calling (772) 398-0720 to schedule a consultation.
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