As 2026 approaches, significant changes to the federal estate tax laws are on the horizon, potentially impacting your estate planning strategies. These changes necessitate a review of your current plan to ensure it remains effective and aligns with the new regulations. Here’s what you need to know about the 2026 estate tax changes and how they might affect your estate planning.
Key Changes in 2026
In 2017, the Tax Cuts and Jobs Act (TCJA) temporarily doubled the federal estate tax exemption. This meant individuals could pass on up to $12.92 million (as of 2023) without incurring federal estate taxes, and married couples could protect up to $25.84 million. Currently, the exemption stands at $13.61 million per person and $27.22 million for a married couple. However, these provisions are set to expire at the end of 2025. Starting in 2026, the estate tax exemption will revert to pre-TCJA levels, adjusted for inflation, which is expected to be around $6 to $7 million per individual.
- Reduced Exemption Limits – The most immediate impact of the 2026 changes is the reduced exemption limit. This reduction means more estates will be subject to federal estate taxes, potentially increasing the tax burden on your heirs. If your estate exceeds the new exemption limits, it’s important to consider ways to minimize the taxable amount.
- Impact on Gifting Strategies – The reduction in the exemption also impacts how much you can give away tax-free during your lifetime. Currently, individuals can gift up to $13.61 million without incurring gift taxes. After 2026, any excess over the new exemption limit will be taxed.
- Review of Trusts and Valuation Discounts – The proposed changes might also revisit the rules regarding irrevocable grantor trusts and valuation discounts for non-business assets. These adjustments could impact the efficiency of certain estate planning techniques, such as using grantor retained annuity trusts (GRATs) and family limited partnerships (FLPs).
Planning Strategies
To mitigate the impact of these changes, proactive estate planning is essential. Here are some strategies to consider:
- Lifetime Gifting – Utilize the current higher exemption by making significant gifts before the end of 2025. This can reduce the size of your taxable estate and take advantage of the higher exemption while it’s still available.
- Trusts – Establishing certain types of trusts, such as Spousal Lifetime Access Trusts (SLATs) or Domestic Asset Protection Trusts (DAPTs), can help manage your estate’s tax liability. These trusts can remove assets from your taxable estate while still providing benefits to your heirs.
- Portability – If one spouse dies before 2026, the surviving spouse can use the deceased spouse’s unused exemption amount. This strategy, known as portability, allows a couple to maximize their combined exemptions even after the law changes.
- Annual Gift Tax Exclusion – Continue to use annual gift tax exclusions to transfer wealth incrementally without reducing your lifetime exemption. For 2024, this amount is $18,000 per recipient.
The upcoming estate tax changes in 2026 will require many individuals to reassess their estate plans. By understanding these changes and seeking professional advice, you can take proactive steps to protect your assets and ensure your wishes are honored.
Our experienced attorneys can guide you through the 2026 estate tax changes, ensuring that your estate planning strategy is both effective and compliant with the new laws. Contact our attorneys at Grissom Law, LLC today. Our staff is dedicated to helping you develop a comprehensive estate plan tailored to your unique needs and goals.
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