How the TCJA Expiration Could Impact Your Estate Planning

Many Arizona families have shaped their estate plans around the expanded federal estate tax exemption introduced by the 2017 Tax Cuts and Jobs Act (TCJA). However, this temporary increase is set to expire on January 1, 2026, which could reduce the exemption amount by nearly half.

At the Citadel Law Firm, PLLC®, we help individuals and families in Chandler and the East Valley prepare for changes in estate and tax law. In this article, we explain what the TCJA sunset could mean for your estate plan and what steps you may want to consider now to preserve more of your legacy.

Tax Cuts and Jobs Act (TCJA) and Its Sunset

The TCJA reshaped federal transfer taxes in 2017 by boosting the lifetime estate and gift exemption far beyond prior limits. That rise meant fewer families needed to worry about the federal estate tax. A single person can currently transfer $13.61 million during life or at death without federal tax, while a married couple can protect double that amount.

The law was never permanent. Without fresh action from Congress, the clock runs out at the end of 2025, and the exemption resets on the first day of 2026.

Potential Impact of the TCJA Sunset on Arizona Estates

While Arizona has no separate estate tax, the federal levy still reaches residents whose property values or business interests push them above the limit. The following points show why the sunset could feel costly.

Reduction of the Federal Estate and Gift Tax Exemption

The TCJA roughly doubled the lifetime exemption when it took effect. If nothing changes in Washington, the shield will fall back to the pre-TCJA baseline, adjusted for inflation, likely close to $7 million per person. Couples who are locked in the current system through portability may still face extra exposure to future growth.

Increased Estate Tax Liability

Anything above the post-sunset exemption carries a flat 40 percent federal tax. Picture an Arizona couple worth $16 million. Under today’s rules, no federal estate tax would apply. With a $14 million joint exemption after 2025, roughly $2 million would be subject to tax, triggering an $800,000 bill.

Impact on Existing Estate Plans

Many living trusts and pour-over wills drafted in recent years rely on formula clauses tied to the larger exemption. When that figure falls, bequests meant for loved ones could shift unexpectedly. A plan crafted to avoid tax might now leave too much in a bypass trust, limiting what the survivor may spend during life.

Estate Planning Strategies to Think About Before the TCJA Sunset

There is still time to use the current exemption, but each step takes analysis and paperwork. The ideas below often work well together.

Maximizing Lifetime Gifts

Gifts made before 2026 lock in the higher exemption even if you die later. Moving appreciating assets out of your estate now means future growth will escape tax, too.

• Use the $18,000 annual exclusion for as many loved ones as you like.
• File a timely gift-tax return for larger transfers to track exemption use.
• Shift assets likely to gain value, such as business interests or growth stocks.

Establishing Irrevocable Trusts

Grantor Retained Annuity Trusts, spousal lifetime access trusts, and dynasty trusts can freeze asset values today while letting future appreciation build for heirs. A well-drafted trust may also protect assets from creditors and divorce claims down the road.

Roth Conversions

Paying income tax now on a traditional IRA and moving the balance to a Roth can trim taxes for the next generation. A Roth has no required minimum distributions for the original owner, and heirs usually pay no income tax on qualified withdrawals.

Reviewing Life Insurance Policies

Life insurance held in an irrevocable life insurance trust can supply cash to cover estate tax without forcing a fire sale of real estate or a family business. Compare current death benefits with the projected estate tax under lower exemptions to see whether extra coverage is wise.

Spending Down Assets

Some retirees prefer to enjoy more of their wealth while alive rather than leave a larger taxable estate. Costly travel, home upgrades, or charitable giving can reduce the eventual tax base.

Handling Complexities and Considerations

Large gifts and advanced trusts bring fresh rules. The following points outline practical hurdles that sometimes get overlooked.

Irrevocability and Loss of Control

Most tax-focused gifts require you to give assets away for good. A spousal trust can soften the loss by giving your spouse access, yet the trade-off between tax savings and control must feel comfortable.

Selecting Appropriate Assets for Gifting

Before signing a deed or stock assignment, weigh potential income tax costs. Assets with big unrealized gains carry the same cost basis to the recipient, who may face higher capital-gains tax later. That downside sometimes makes cash or minority business interests better candidates.

1. Confirm that your will still has enough liquid funds for personal needs.
2. Review any shareholder or operating agreements if gifting limited partnership or LLC units.
3. Obtain a formal valuation to support discounts for lack of control or marketability, which can stretch the exemption further.

Trust Administration

Once assets sit inside a trust, the trustee must follow the trust terms, file separate tax returns when required, and keep records for multiple beneficiaries. Skipping these formalities risks IRS scrutiny and family conflict.

Act Now to Protect Your Estate Plan Before the TCJA Sunset

The 2026 sunset of current estate tax exemptions is approaching, and planning ahead can make a significant difference. At the Citadel Law Firm, PLLC®, we help clients take timely action—reviewing formula clauses, exploring gifting strategies, and securing future growth. Call us at 480-565-8020 or visit our Contact Us page to schedule a conversation. Let’s work together to update your plan, reduce future tax burdens, and give your family lasting peace of mind before the current rules change.