Hi friends! Let’s talk about something that feels a bit like a financial horror story, but it’s very real. Picture this: you’ve spent a lifetime building a legacy, only to have a huge chunk of it vanish because of a tax law change you didn’t see coming. For U.S. expats with significant wealth, that’s the exact cliff we’re racing toward. This guide is your map to safety. We’re going to break down exactly what’s happening, why it’s a perfect storm for those living abroad, and give you three clear, actionable moves to make right now. Your family’s financial future depends on it.
The TCJA Tax Sunset 2026 is the most significant wealth transfer event in a generation. On December 31, 2025, the clock runs out on historic tax breaks, potentially slashing what you can pass on to your loved ones by millions. For high-net-worth individuals outside the U.S., understanding this countdown isn’t optional—it’s essential for protecting your global legacy.
Understanding the 2026 Countdown: Your Exemption is Shrinking
Back in 2017, the Tax Cuts and Jobs Act (TCJA) gave us a temporary gift: it more than doubled the federal estate tax exemption and gift tax exemption. But here’s the catch—it was always designed to expire, or “sunset,” at the end of 2025. Think of it like a limited-time sale on protecting your wealth. When the sale ends, the price of transferring assets goes way up.
This sunset is automatic. No new law needs to pass; the exemption amount simply reverts to pre-2018 levels, adjusted for inflation. That means the current exemption of about $13.61 million per person is set to be roughly cut in half to an estimated $7 million. Any portion of your current high exemption that you don’t use is permanently lost when the rules change. This is the ultimate “use-it-or-lose-it” scenario. For married couples, there’s a critical tool called “portability” that lets you preserve a spouse’s unused exemption, but you have to take specific steps to lock it in.
As recent analysis underscores, proactive planning before this December 2025 deadline is essential to leverage the current historically high exemption amounts for wealth transfer.
Why Expats Face a Perfect Storm (Beyond Just the Exemption)
If you’re a high-net-worth expat, this isn’t just another U.S. tax headache. It’s a multi-layered crisis. First, the U.S. taxes its citizens on worldwide assets. That foreign villa, your international stock portfolio, and the bank account in Switzerland? All count toward your taxable estate. The complexity of your cross-border life makes proactive planning not just smart, but essential to avoid a financial disaster.
Tax treaties might offer some relief, but they’re patchy and rarely wipe out estate tax for large estates. Then, there’s the administrative nightmare: valuing foreign assets for the IRS is costly and risky. Plus, if tax is due, you need liquid U.S. dollars within nine months of death—foreign assets can be hard to sell quickly. For expats, the sunset demands a coordinated, cross-border defense strategy.
Urgent Move #1: Supercharge Your Lifetime Gifting Strategy
The first and most direct move is to use your current high lifetime gift exemption before it shrinks. The core principle is beautiful in its simplicity: assets you gift today are removed from your future estate, along with all their future growth. That appreciation is never subject to tax.
Here’s a stark example. Gifting $10 million today uses part of your exemption and costs $0 in gift tax. If that $10 million grows to $20 million by the time you pass, that extra $10 million in growth is never subject to estate tax. After 2026, gifting that same $10 million could use up your entire new exemption, leaving no room for other assets.
Focus on gifting assets with the highest potential for appreciation, like business interests or stock portfolios. But be cautious: gifting assets with a low cost basis can pass capital gains tax burdens to your heirs. Always weigh the wealth transfer benefits against the income tax implications.
How to Implement This Move
- Inventory & Value: Identify which of your assets are most likely to grow significantly in the future.
- Consult on Basis: Work with a tax advisor to understand the “carryover basis” capital gains implications for whoever receives the gift.
- Formalize the Gift: Document the gift properly with a deed or assignment. You must file IRS Form 709 (Gift Tax Return) to report the use of your exemption, even if no tax is due.
A foundational strategy, as experts note, involves making substantial lifetime gifts to utilize the current gift tax exemption before it is halved, effectively removing future appreciation from the taxable estate.
Urgent Move #2: Lock in Benefits with an Irrevocable Trust (The SLAT Strategy)
For more sophisticated planning, consider an irrevocable trust. Assets placed in a properly structured trust are permanently removed from your estate. You give up control, but the assets are protected for your beneficiaries from creditors and, crucially, from estate tax.
A Spousal Lifetime Access Trust (SLAT) is a powerful tool for expats. One spouse (the grantor) gifts assets into an irrevocable trust for the other spouse’s benefit. This uses the grantor’s exemption now and removes the assets—plus all future growth—from the *combined* estate. The beneficiary spouse can still receive distributions if needed, offering a safety net. For couples, a SLAT can be an elegant way to leverage today’s high exemption while maintaining some family flexibility.
How a Spousal Lifetime Access Trust (SLAT) Shields Wealth
(with $13.61M exemption)
(Irrevocable Gift)
SLATs can be designed as “grantor trusts” for income tax efficiency and include descendants as beneficiaries. Be mindful of the “reciprocal trust doctrine” if both spouses create SLATs. Other structures like Dynasty Trusts leverage the generation-skipping transfer tax exemption, also set to be halved.
How to Implement This Move
- Feasibility Check: Is your marriage stable? Are you comfortable giving up direct control of these assets for long-term family gain?
- Jurisdiction & Drafting: Hire an attorney specializing in cross-border estate planning. The choice of state law (e.g., Delaware) is crucial for trust benefits.
- Fund the Trust: Legally transfer the chosen assets (like securities or cash) into the trust’s name to complete the gift.
Urgent Move #3: Secure Portability—Don’t Let Your Spouse’s Exemption Vanish
For married couples, portability is a game-changer. It allows a surviving spouse to “inherit” the deceased spouse’s unused estate tax exemption (called the DSUE amount). But here’s the critical warning that many miss: Portability is NOT automatic. You must elect it by filing a timely and complete IRS Form 706, even if the estate owes no tax.
The return is due within 15 months of death (9 months plus a 6-month extension you must apply for). Missing this deadline forfeits the unused exemption forever. This is doubly urgent before 2026. If the first spouse dies in 2024 with a full $13.61M unused, the survivor can port that. After 2026, the portable amount is based on the new, lower exemption.
How to Implement This Move
- Awareness: Ensure both spouses and your estate attorney know this requirement is non-negotiable.
- Document Preparation: Keep impeccable records of all lifetime gifts to accurately calculate any unused exemption.
- Proactive Planning: Treat filing IRS Form 706 as a mandatory step in estate administration, regardless of estate size.
For married couples, securing portability by filing a timely IRS Form 706 estate tax return is crucial to preserve any unused exemption of the first spouse to die for the surviving spouse’s future use.
Your Action Plan: A Timeline to the 2025 Deadline
Race Against the Sunset: Your 2024-2025 Planning Timeline
Work backwards from the December 31, 2025 deadline. The window is closing, but it’s still open. Honestly, the cost of planning today pales in comparison to the multimillion-dollar tax liability of inaction tomorrow. Your first step is a consultation with experts who understand your expat life.
Given the complexity and permanence of these moves, consulting with a specialized tax advisor to develop a personalized plan before 2026 is strongly recommended.
FAQs: ‘generation-skipping transfer tax’
Q: I’m a U.S. expat with all my assets in another country. Do I still need to worry about the U.S. estate tax?
Q: Can I undo a large gift or dissolve an irrevocable trust if my circumstances change?
Q: What happens if I don’t use my full exemption before 2026? Is it truly ‘use-it-or-lose-it’?
Q: How does the Generation-Skipping Transfer Tax (GSTT) factor into this?
Q: I have a net worth below the current exemption. Should I still act?
This isn’t really about taxes. It’s about preserving your life’s work for your family on your terms. The 2026 sunset is a rare, predictable event in the tax world—a known deadline we can plan around. By taking informed, strategic action in the next 18 months, you’re not dodging a cliff; you’re building a bridge to a secure future for the generations that follow you.
