A hot topic among our clients is the proposed amendment to the Federal Lifetime Gift & Estate Tax Exclusion and how it may affect their current estate plan. At this point Congress did not pass the proposed amendment to the law that was to go into effect January 1, 2022. And there does not seem to be a lot of talk of bringing this to the forefront again for a vote anytime soon.

The current law doesn’t reduce the exemption until January 1, 2026, when it would revert to $5 million. The exemption is a lifetime exemption per person and applies to gifts you make during your life or distributions to your beneficiaries after your death. Any amounts gifted or passed through your estate in excess of the deduction amount will be subject to either federal gift tax or federal estate tax.

This change will only impact you if your net worth is in excess of $5 million (adjusted for inflation). If you are like many people, me included, who can only dream of having $5 million dollars of assets in your lifetime then the reduction of the exemption on January 1, 2026, or before, will have no effect on you or your planning. However, if you do have significant assets you may want to consult a qualified estate planning attorney to determine if you can make additional gifts before the law rolls the exemption amount back to $5 million in approximately 4 years. The attorney will also be able to advise you if establishing and funding a grantor trust prior to the exemption being reduced would benefit you and help to reduce any federal gift or estate taxes. Please keep in mind that this law and any changes applies to federal gift and estate taxes and has no effect on the assets or value of the assets subject to Pennsylvania inheritance tax. Inheritance tax in Pennsylvania is separate and apart from any federal laws and currently inheritance tax is assessed on almost every asset you own with the exception of life insurance.

For questions on if the proposed changes in the federal gift and estate tax laws in early 2026 will negatively impact you or your estate planning or questions on Pennsylvania inheritance tax, please consult a qualified estate planning attorney for a review of your estate plan. We would be happy to schedule a time to speak with you regarding your individual situation.

Please feel free to give us a call if you have any questions or comments at 717-845-5390.