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Individuals who can afford to part with $13.99 million ($27.98 million for married couples), and in some cases, even those who feel like they cannot, should undertake planning now. Even those who have done extensive estate planning in the past should review their estate plan and see how they might make best use of any remaining exemption. For example, an individual who used all their then-available exemption on gifts during 2022 could make $1,930,000 ($3,860,000 per couple) of additional tax-free gifts this year using the subsequent inflation adjustments to the lifetime exemption. Even someone who used all their exemption on gifts last year can still make $380,000 ($760,000 per couple) of additional tax-free gifts this year using just the 2025 inflation adjustment.

Assuming moderate inflation this year, the lifetime exemption could decrease from $13.99 million in 2025 to approximately $7 million in 2026. Making pre-sunset taxable gifts of the enhanced exemption amount would result in estate tax savings of $2.8 million (based on the current estate tax top rate of 40 percent). Keep in mind that this is just intended to provide a general sense of the benefit at stake; it is somewhat difficult to quantify the value of making pre-sunset taxable gifts while the enhanced exemption is available given the potential variables involved, including (1) the amount of any inflation adjustments to the exemption over time, (2) the timing of the donor’s death, and (3) the date of actual sunset in light of potential legislative changes.

In addition to the tax savings attributable to utilization of the enhanced exemption before it sunsets, lifetime taxable gifts may produce an estate freezing benefit as well. This is because post-gift appreciation of and income from the gifted assets will generally not be subject to gift or estate tax in the hands of the donor (or, if a long-term trust is utilized, potentially even in the hands of subsequent generations). As long as the donor does not retain any power over or interest in the transferred assets, additional estate tax savings (to those attributable to use of the exemption before it sunsets) may result, especially if you gift assets with significant appreciation potential. However, you should also be aware that the transfer of assets during your life will mean forgoing the potential step-up in basis to fair market value available for assets owned at death.