In planning a comprehensive estate strategy, it is vital to factor in the impact of taxes on the transfer of wealth. If you are fortunate enough to own substantial assets, you face the possibility that federal gift and estate taxes could significantly reduce the value of the wealth that you intend to pass down to loved ones. At the moment, the federal exemption offers a significant and rare opportunity to substantially reduce your estate’s tax burden; however, that exemption is scheduled to roll back in the near future. With that in mind, the attorneys at Legacy Care Law Firm prompt you to consider whether you and your estate are ready for the lifetime exemption to be rolled back at the end of 2025.
What Are Federal Gift and Estate Taxes?
The federal gift and estate tax is levied on the transfer of wealth, including transfers made during life as well as those made at the time of your death. It taxes the total of all lifetime gifts in combination with the value of assets remaining in a decedent’s estate. The obligation to pay this tax lies with the estate, which must first calculate its total taxable value and settle any federal tax owed before distributing assets to beneficiaries.
New Hampshire does not impose its own state-level estate or inheritance tax. Residents therefore need only focus on the federal tax regime. Massachusetts residents, however, must take into account both federal gift and estate taxes and a state estate tax when contemplating their estate plan. Under current law, the federal gift and estate tax rate is a flat 40 percent which creates the potential for a considerable tax burden on the estate that you leave behind if you have a valuable estate. By way of explanation, imagine that you made gifts valued at $15 million during your lifetime and left behind an estate valued at $15 million at the time of your death. Collectively, that represents $30 million in wealth subject to federal (and potentially state) gift and estate taxation. Without the benefit of exemptions, the tax liability would amount to a staggering $12 million, taking a serious toll on the inheritance left behind for loved ones.
Understanding the Lifetime Exemption
Fortunately, the Internal Revenue Code includes a “lifetime exemption” that can be used by taxpayer. This exemption shelters a certain amount of lifetime gifts and estate value from taxation. Historically, the amount of the exemption fluctuated, but in 2012, the American Taxpayer Relief Act fixed the exemption at $5 million per individual, adjusted for inflation. In 2018, the Tax Cuts and Jobs Act (TCJA) temporarily increased the lifetime exemption to a much higher level, benefiting those with considerable estates. For 2025, the increased exemption is set at $13.99 million per individual, or $27.98 million for a married couple. This elevated amount presents a rare window of opportunity for taxpayers, enabling them to transfer large sums of wealth without triggering federal tax liability. Consider again an estate valued at $30 million. With the current exemption, $16.01 million would be taxable, instead of $30 million, resulting in approximately $6.4 million in federal tax, reducing the tax liability by almost half.
The Impending 2026 Lifetime Exemption Rollback
Unless legislation extends the current exemption, the TCJA provision is set to expire on January 1, 2026. At that point, the exemption will revert to the pre-TCJA level of $5 million, adjusted for inflation since 2018. Estimates currently suggest that the post-expiration exemption will fall somewhere near $6.8 to $7 million per individual. This change would nearly halve the current exemption, leaving many estates vulnerable to significantly increased taxation on assets transferred via gifts or at death.
The Anti-Clawback Rule: A Safeguard for Gifting
One question often raised by those considering large gifts now is whether these gifts will later be “clawed back” into the estate once the exemption is lower, effectively negating the tax benefits of the increased exemption. The Internal Revenue Service has addressed this issue through an “anti-clawback” regulation. Pursuant to that rule, gifts made under the current higher exemption will not be retroactively taxed even if the exemption decreases by the time of death. This provides a critical safeguard, assuring individuals that they can confidently utilize the current exemption without fear of future tax surprises.
Strategies That Can Help You Prepare for the Lifetime Exemption Rollback
With the rollover looming, taking action now can preserve significant wealth within families. Each of the following approaches can be tailored to align with your overall estate planning objectives:
- Make Substantial Gifts Before 2026: Consider leveraging the elevated exemption to transfer significant wealth, such as family business interests, real estate, investments, or other appreciable assets. Creating trusts, like irrevocable life insurance trusts (ILITs), grantor retained annuity trusts (GRATs), or charitable lead trusts, can help move wealth out of your taxable estate while continuing to support beneficiaries. Giving now locks in today’s higher exemption.
- Use Irrevocable Trusts to Isolate High-Value Assets: An irrevocable trust structures asset ownership so that those assets are legally removed from your estate. Assets held within are not considered part of your taxable estate because you have relinquished control. This approach is particularly effective for appreciated assets, which otherwise would incur capital gains and estate tax upon later transfer. Placing high-growth or highly valuable assets into an irrevocable trust before 2026 can preserve significant wealth for future generations.
- Maximize Generation-Skipping Transfer (GST) Tax Exemptions: In addition to the lifetime gift and estate exemption, the GST tax exemption offers further tax relief when transferring wealth across multiple generations, such as from grandparents to grandchildren. Using the current exemption before it expires in 2026 allows New Hampshire families to protect significant amounts from both estate tax and GST tax if properly structured within trusts.
- Coordinate Tax Planning with Financial Goals: Working with both estate planning and financial advisors ensures your tax strategies complement broader retirement or investment plans. This coordination helps avoid conflicts, such as those between taxable trusts and ongoing investment growth, and ensures liquidity is available to pay projected taxes.
Reviewing Your Estate Plan
With the lifetime exemption rollback looming, now is the time to thoroughly review and potentially revise your estate plan with an experienced estate planning attorney. Things to consider include:
- Updating Wills and trusts to ensure current beneficiaries and assets are accurately captured.
- Lifetime gift planning and execution, including timely trust reconfigurations if necessary.
- Alignment of asset ownership and beneficiary designations to minimize unintended exposure to state or federal taxes.
- Coordination of financial holdings and estate structures to preserve liquidity and tax efficiency.
- Ensuring your generation-skipping transfer strategies, including GST trust planning, align with current law and future goals.
Acting promptly ensures that you can leverage federally sanctioned tax savings, including anti-clawback protection, to preserve large portions of your wealth. Once the deadline passes, however, the existing opportunities may evaporate, and estates that exceed the new exemption limit will face a substantially greater tax burden.
Can We Help You Prepare for the Rollback of the Lifetime Exemption?
For more information, please join us for an upcoming FREE seminar. If you would like assistance ensuring that your estate is ready for the rollback of the lifetime exemption, contact our estate planning attorneys in our North Andover, Woburn, and Beverly offices at (978) 969-0331. Our Salem and Nashua, New Hampshire office can be reached at (603) 894-4141.
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