Ready for the 2026 Federal Estate Tax Exemption Sunset?

The Federal Estate Tax Exemption & The Sunset

The federal estate tax exemption, which was substantially increased by the Tax Cuts and Jobs Act of 2017, is scheduled to revert to its pre-2018 levels on January 1, 2026. This looming deadline, often referred to as the “federal estate tax exemption sunset,” means a much larger number of estates will be subject to federal estate taxes.

For New Jersey residents, this is a particularly important issue. Since the state’s own estate tax was repealed in 2018, many people in Monmouth and Ocean counties may not have considered federal tax liabilities in their planning. Now, with the impending sunset, it’s essential to review and adjust your estate plan to account for this potential change and minimize future tax liabilities.

The Looming Deadline: What You Need to Know

For the past several years, many Americans have enjoyed a historically high federal estate tax exemption, allowing them to pass on a substantial amount of wealth to their heirs free of federal estate tax. This provision, a key part of the Tax Cuts and Jobs Act (TCJA) of 2017, is set to “sunset” at the end of 2025. On January 1, 2026, the exemption amount is projected to fall to roughly half of its current level, adjusted for inflation.

This change could have a profound impact on families who previously thought their estates were too modest to be subject to federal estate tax. Suddenly, estates valued at what was once considered a comfortable middle-class or upper-middle-class level could now face a significant tax liability.

Why This Is Particularly Important for New Jersey Residents

For residents of Monmouth and Ocean counties, this federal change takes on special importance. New Jersey repealed its state-level estate tax in 2018. This provided a welcome relief for many families, allowing them to focus on other aspects of their estate plans without the worry of a state death tax. However, the impending federal exemption reduction means that federal tax considerations are back at the forefront of estate planning.

Many people may not have revisited their estate plans since the New Jersey tax was repealed, assuming that their tax concerns were behind them. This is no longer a safe assumption. Now is the time to review your plans and ensure they are structured to protect your legacy and minimize potential tax burdens under the new federal rules.

A Case Study: The Johnson Family

Mr. and Mrs. Johnson, a retired couple living in Ocean County, have a combined estate valued at $15 million, primarily in real estate and investments. When New Jersey repealed its estate tax, they felt they had their affairs in order. They were well below the federal exemption at the time and believed their children would inherit their assets without a significant tax hit.

However, they recently learned about the 2026 federal exemption sunset. If they were to pass away after the change, their estate could be subject to federal estate tax on the amount that exceeds the new, lower exemption. By consulting with an attorney now, they can explore strategic options like lifetime gifting or establishing certain types of trusts to potentially reduce their taxable estate and preserve more of their wealth for their children.

Don’t Wait to Plan

The 2026 sunset is not a distant concern; it’s a rapidly approaching deadline. The time to act is now. By working with a knowledgeable estate planning attorney, you can understand how this change will affect your specific situation and take proactive steps to protect your assets and your loved ones. We can help you navigate these complex rules and develop a personalized strategy that ensures your wishes are honored and your legacy is secure.

To learn more about how the 2026 federal estate tax changes may impact your estate plan,

contact Andrew Krantz, Esq. at Zager Fuchs today for a consultation.