The sunset was repealed. You already gifted. Now what?

You made a large irrevocable gift in 2024 or early 2025 because the exemption was scheduled to drop to $7 million on 1 January 2026. The One Big Beautiful Bill Act, signed 4 July 2025, repealed that sunset and set the exemption at $15 million instead. The deadline you were planning for disappeared six months early, and the gift you made to beat it is still sitting in an irrevocable trust.

What changed on 4 July

The Tax Cuts and Jobs Act of 2017 doubled the estate and gift tax exemption but scheduled it to revert on 1 January 2026. Under that schedule, the exemption would have dropped from $13.99 million in 2025 to approximately $7 million in 2026. That cut would have applied to estates, to lifetime gifts, and to generation-skipping transfers.

On 4 July 2025, the One Big Beautiful Bill Act became law. Section 14003 of that statute amended 26 U.S.C. § 2010(c)(3) to read: "the basic exclusion amount is $15,000,000." The new exemption took effect 1 January 2026, indexed to inflation in subsequent years. The sunset was not extended. It was repealed.

That left the exemption higher in 2026 than it had been in 2025. A married couple that would have had $28 million of combined exemption under the sunset schedule received $30 million instead. The increase was permanent, and the legislative history suggests no further scheduled changes.

Who this caught

The estate planning profession spent the better part of five years advising clients to make large gifts before the scheduled sunset. The advice was sound when it was given. The exemption appeared certain to drop, the legislative window to prevent it had closed, and the cost of waiting past 31 December 2025 would have been measurable in millions. Use it or lose it.

A client with $20 million in assets and no particular tax planning motive other than the exemption might have been told to gift $10 million into an irrevocable trust in 2024. That would have consumed $10 million of the $13.61 million exemption available that year, preserving the benefit before the sunset. The gift removed the assets from the taxable estate, sheltered future appreciation, and locked in the exemption before it dropped.

If the sunset had occurred as scheduled, that gift would have saved the family approximately $1.2 million in estate tax at the 40 percent rate applied to amounts above the reduced exemption. The advice would have been correct, the execution clean, and the result exactly what was intended.

The sunset did not occur. The same client now holds $15 million of exemption for 2026, an amount they would have held regardless of whether they made the gift. The $10 million transferred in 2024 is gone from the estate, irrevocable, and the exemption it consumed has been rendered unnecessary by the change in law.

What it cost

The harm is not the tax that was paid. No gift tax is due on a transfer within the exemption. The harm is everything else the transfer carried with it.

Appreciated property transferred by gift carries over its basis under 26 U.S.C. § 1015. Property held until death receives a step-up to fair market value under Section 1014. A $10 million gift of stock with a $1 million basis transfers $9 million of unrealised gain to the recipient. That gain will be taxed when the stock is sold. The step-up that would have applied had the property remained in the estate until death is lost.

The second cost is the exemption itself. A gift made in 2024 consumed exemption at $13.61 million. The same client now holds $15 million of exemption for 2026 without having made the gift. If the estate ultimately exceeds $15 million, the earlier gift will have preserved some exemption. If it does not, the gift consumed exemption that would have remained available in any case.

The third cost is control. An irrevocable trust is irrevocable. The property cannot be brought back into the estate, the terms of the trust cannot be unwound without the consent of parties whose interests may now diverge, and the flexibility to respond to changed circumstances has been traded for a tax benefit that did not materialise.

The anti-clawback regulation does not help here

In 2019, the IRS issued Treasury Regulation § 20.2010-1(c), commonly called the anti-clawback rule. That regulation confirms that if a taxpayer makes a gift while the exemption is high and dies after the exemption has been reduced, the estate tax calculation uses the higher exemption that was in effect when the gift was made. The rule prevents the IRS from clawing back the benefit of exemption that existed at the time of the transfer.

The anti-clawback regulation operates when the exemption decreases. It does not apply when the exemption increases. A gift made in 2024 at a $13.61 million exemption is tested against an estate exemption of $15 million in 2026. The regulation provides no mechanism to reverse a completed gift, no credit for exemption consumed unnecessarily, and no adjustment for the step-up that was forgone. It protects a benefit. It does not create one where the law moved in the opposite direction.

Can the gift be unwound

An irrevocable transfer is irrevocable as a matter of gift tax law. The IRS position, reflected in decades of rulings and litigation, is that a completed gift cannot be undone by mutual agreement of the parties after the fact. Allowing rescission would permit taxpayers to make transfers, observe the tax outcome, and unwind those that produced unfavorable results. The Service does not permit that.

There are narrow exceptions. A transfer that was void from the beginning under state law—because of fraud, undue influence, lack of capacity, or a mistake of fact so fundamental that no agreement was ever formed—may be rescinded in a manner the IRS will respect. The standard is high. A change in the tax law is not a mistake of fact. A transfer made in reasonable reliance on the law as it stood is not voidable merely because the law later changed.

Some families will conclude that the non-tax reasons for the transfer—asset protection, probate avoidance, succession planning—justify the result even if the tax benefit did not materialise. Others will find that the costs now outweigh those benefits and will want to know what can be done. The answer, in most cases, is little. The trust can be administered in a way that serves the family's goals going forward, but the property is unlikely to come back.

What still made sense

Not every gift made in anticipation of the sunset was rendered unnecessary by the repeal. A married couple with a $50 million estate and $30 million of combined exemption in 2026 still faces $8 million in estate tax at a 40 percent rate. Gifting $20 million in 2024 removed that amount plus all future appreciation from the estate. The repeal increased the exemption available, but it did not eliminate the tax.

Gifts of property expected to appreciate significantly—a closely held business, a concentrated stock position, development land—produce a benefit that does not depend on the exemption level. Removing the asset before the appreciation occurs removes the appreciation from the estate as well. If the $10 million gift is worth $30 million at death, the estate has avoided tax on $20 million of growth.

A number of states impose their own estate tax with exemptions that may be set considerably lower than the federal figure. State exemptions vary, and some are far below $15 million. A gift that reduces the state taxable estate may have been worth making without reference to the federal sunset.

Sophisticated techniques—grantor retained annuity trusts, sales to intentionally defective grantor trusts, qualified personal residence trusts—use the exemption as one input among several. A GRAT structures a gift of future appreciation while returning the principal. The value of that structure does not turn entirely on exemption preservation.

For a family whose primary motivation was the urgency of the sunset, and whose estate would not have triggered tax at a $15 million exemption, the gift was a response to a deadline that no longer exists.

The basis tradeoff matters more now

At a $7 million exemption, the choice between gifting and holding often came down to estate tax saved versus capital gains tax incurred. For large estates, the estate tax at 40 percent outweighed the capital gains tax. The gift made sense even with the basis penalty.

At a $15 million exemption, the calculation inverts for a meaningful portion of the market. An estate of $20 million pays tax on $5 million at death if nothing is done. A $10 million gift avoids $2 million of estate tax and creates future capital gains tax on the embedded gain when the position is sold. Whether the gift produces a net savings depends on the basis in the property transferred.

The step-up in basis at death under Section 1014 remains in the Code. Trading a certain step-up for an uncertain estate tax benefit is a calculation that depends on the size of the estate, the composition of the assets, and the likelihood that the law will change again before death. For estates that now fall comfortably below $15 million, the trade looks considerably less favorable than it did when the exemption was expected to be half that.

What the profession has published

The estate planning bar published extensively in the years leading up to the scheduled sunset. The American College of Trust and Estate Counsel, the American Bar Association, and nearly every firm with a tax practice issued guidance on the urgency of acting before 31 December 2025. The advice was detailed, the analysis thorough, and the consensus clear.

After the One Big Beautiful Bill Act became law, the same organisations published updates celebrating the $15 million exemption and explaining its application going forward. Those updates describe the new law. They do not address the question of what a family should do if they already acted on the old one.

Bottom line

The question worth asking is not whether the gift was a mistake. It was not. The question is what the gift actually accomplished, now that the sunset has been repealed, and whether the non-tax reasons for the structure justify the tax costs it carried with it. That is a conversation that requires the details of what was transferred, how the trust is structured, who the beneficiaries are, and what the family's goals are now rather than what they were in 2024.

For estates that exceed $15 million, the gift may still produce a benefit. For estates that do not, the loss of the step-up and the consumption of exemption that would have been available in any case represent costs without a corresponding tax savings. The magnitude of those costs depends on the basis in the property, the appreciation since the transfer, and the likelihood that the estate will ultimately trigger tax.

The trust can be administered going forward in a way that serves the family. It cannot, in most cases, be undone. The question is not how to reverse what was done. It is how to make the best use of the structure that now exists, and whether future planning should proceed on the assumption that this exemption is as durable as the statute now suggests or whether the lesson of the last eight years is that the exemption can move in either direction with less notice than a planning engagement requires.

This article describes how the statutes and regulations read as of December 2025. It is not advice about any particular transfer or any family's situation. Those questions turn on the terms of the documents, the basis and character of the assets, the state of residence, and the structure of the trust. They are worth walking through with an estate attorney and a CPA who can see the whole picture at once.