Urgent Estate Planning Strategies for the Upcoming 2026 Tax Exemption Changes

Dear Valued Clients,

As you may be aware, the Tax Cuts and Jobs Act of 2017 (TCJA) significantly increased the lifetime estate and gift tax exemptions to $13.61 million for individuals and $27.22 million for married couples. However, these elevated exemptions are set to expire on January 1, 2026, and without new legislation, they will revert to approximately $7 million for individuals and $14 million for married couples, adjusted for inflation. This impending reduction presents a critical “use it or lose it” scenario for those with taxable estates.

Immediate Action Recommended

If you do not take advantage of the current exemptions, you could face substantial tax liabilities. The federal estate tax rate is 40%, meaning the reduced exemptions could result in up to $2.8 million in tax per individual or $5.6 million for a married couple transferring their estate to heirs. Fortunately, the IRS has confirmed that benefits used under the current exemption won’t be subject to future reductions, making now the perfect time to act.

Key Estate Planning Strategies

1. Lifetime and Annual Gifting: Utilize these strategies to transfer wealth while minimizing tax exposure. The current annual exclusion amount is $18,000 per recipient, allowing for systematic estate reduction.

2. Irrevocable Life Insurance Trusts (ILITs): Ensure life insurance proceeds are not included in your estate, providing tax-free liquidity for estate obligations.

3. Spousal Lifetime Access Trusts (SLATs): Transfer assets into an irrevocable trust to benefit your spouse, reducing your taxable estate while maintaining access to the trust’s income.

4. Grantor Retained Annuity Trusts (GRATs): Transfer assets to a trust and receive annuity payments, with remaining assets passing to beneficiaries tax-free if the IRS’ assumed rate is exceeded.

5. Intentionally Defective Grantor Trusts (IDGTs): Transfer appreciating assets to a trust while paying income taxes yourself, allowing the trust’s assets to grow tax-free.

6. Qualified Personal Residence Trusts (QPRTs): Transfer your residence into a trust to reduce gift tax consequences and remove future appreciation from your taxable estate.

7. Charitable Remainder Trusts (CRTs): Support charitable causes while securing income and tax benefits, transferring the remainder interest to charity at the end of the trust term.

8. Charitable Lead Trusts (CLTs): Provide immediate support to charities with annual payments, eventually transferring remaining assets to non-charitable beneficiaries.

9. Dynasty Trusts: Preserve wealth across generations, avoiding estate and generation-skipping taxes with each transfer, ensuring long-term family financial security.

10. Family Limited Partnerships (FLPs): Facilitate business interest transfers with valuation discounts, reducing the taxable value of your estate while ensuring family business continuity.

Strategic Estate Planning for Different Wealth Brackets

Mid-affluent individuals and couples should consider future tax exposure, especially with potential asset growth. Historically, investments like those in the S&P 500 have averaged 7.3% annual returns, potentially doubling in value every decade. Proactive estate planning can mitigate future tax liabilities.

For those with estates over $20 million, meticulous planning is essential as 2026 approaches. One effective strategy is for one spouse to utilize their full exemption, transferring assets to beneficiaries or trusts, while the other spouse retains flexibility and security.

Take Action Now

We strongly recommend scheduling a consultation with our team to discuss these strategies in detail and ensure your estate plan is optimized before the 2026 changes. Proactive planning now can secure significant tax advantages and protect your family’s financial future.