In 2017, a Republican-controlled House and Senate passed the landmark Tax Cuts and Jobs Act. The TCJA more than doubled the maximum that donors can give their beneficiaries without incurring federal gift or estate taxes. At the end of 2025, several provisions of the Act are set to expire, or “sunset” – one being the federal generation-skipping transfer tax tax-exemption.
GST tax may sound familiar but is often overlooked. The GST tax-exemption applies to transfers of assets to beneficiaries who are more than one generation younger than the donor, without incurring taxes. The U.S. government initially enacted the GST tax in 1976 to prevent wealthy families from passing assets down through generations without ever paying taxes on the transferred assets. Under TCJA, the GST tax exemption is $13.99 million per individual in 2025, and married couples have a combined GST tax exemption of nearly $28 million. Starting next year, that amount is set to revert to a forecasted $7 million baseline per individual, back to what it was in 2017 and indexed for inflation. The GST tax is currently set at a flat rate of 40% on transfers above the tax exemption amount. As 2025 comes to a close, high net worth individuals are urgently arranging to utilize the current estate, gift and GST tax exemptions to make high value transfers to their beneficiaries before the TCJA sunset, otherwise risking potential significant estate and generation-skipping transfer tax upon death.
Wealthy couples at the onset of a divorce are all the more pressed to transfer their assets, because divorce terminates the possibility of sharing the GST tax exemption. If couples fail to properly plan for wealth transfer, they could cost their beneficiaries millions in taxes. Before divorces finalize, family law attorneys and estate planning attorneys are working in close coordination with one another to help clients maximize the use of federal estate, gift and GST tax exemptions. Depending on whether divorcing parties want to pursue separate or joint estate and tax planning strategies, lawyers may want to either accelerate or delay the proceedings to conveniently time the final divorce decree.
Property division negotiations and settlements can also be carefully timed and structured so that both parties can maximize the utilization of exemptions, especially for clients with high-value estates. Dynasty trusts are a time-honored planning tool used by estate planning experts for tax efficient wealth transfer. Dynasty trusts are common among wealthy families, as they can theoretically last for generations and protect assets from repeat taxation on assets at every generation. In blended families, dynasty trusts are even more complex when considering children from previous relationships. Some couples might choose to create their own separate dynasty trusts in such situations. Wealthy couples planning to separate need to consider how their approach to transferring assets can impact their descendants for generations to come.
As the provisions of the TCJA come to a halt at the end of this year, all readers should be aware that the exemptions subject to be cut nearly in half can drastically impact various taxable assets such as investment portfolios, real estate, business interests and life insurance policies. As discussed, the exemptions will affect not just generation-skipping transfers, but will extend to lifetime gifts and bequests upon death. Other provisions set to expire by the end of the year include the reversion of standard and charitable deductions, the child tax credit, and business income deductions to pre-TCJA rates. Assuming that Congress does not act between now and the end of 2025, paying attention to the approaching expiration dates of the TCJA tax provisions and planning accordingly, can save millions in tax liability.
On a final note, the Trump Administration’s “Big Beautiful Bill,” passed by the House on May 22, includes proposals that would not just prevent the sunset of the current estate, gift and GST tax exemptions, but would alter the TCJA provisions (like raising exemption thresholds, boosting deductions) and make them permanent. The Tax Foundation reports that one of the bill’s provisions would permanently increase the estate and gift tax exemption from $13.99 million to $15 million per individual starting in 2026, indexed for inflation. Consider it a sort of tax amnesty on inherited wealth if the bill is passed. The pending provisions would allow the wealthiest of Americans to pass down assets that they themselves have worked towards and paid taxes on already, but it also perpetuates the nation’s growing class divide and potentially imbalances tax burdens to middle and lower-income families.
This article originally appeared as a column for the Cleveland Jewish News.