Prepare for 2026 estate tax changes with essential strategies to safeguard your assets. Discover practical tips to optimize your planning today.
Looking ahead to protect your legacy? Estate planning may seem complex, especially with the ever-shifting landscape of tax regulations. But don't worry—we'll help you chart a clear course through these important decisions.
As we look ahead to 2026, it's crucial to understand that the gift and estate tax exemption is poised for a significant decrease.
This impending shift presents both challenges and opportunities for individuals and families alike. With the current higher estate tax exemptions set to expire, taking proactive steps now can make a world of difference in preserving your wealth and minimizing tax liabilities.
Big changes are on the horizon when it comes to estate and gift tax exemptions. By the close of 2025, they will return to 2017 exemption levels, adjusted for inflation.
These changes will have significant implications for estate planning strategies and require proactive preparation.
In 2026, estate and gift tax exemptions will drop. This change means that, starting in 2026, individuals and families may owe estate tax on a larger portion of their wealth if their estate exceeds the exemption limit. Now, the exemption is high because of the Tax Cuts and Jobs Act of 2017.
Before this law, each person could only give a smaller amount tax-free. Starting in 2026, we go back to those lower numbers.
This shift affects how much wealth people can pass on without facing a big tax bill. For example, married couples who could share more wealth tax-free will have to plan differently.
They need to think about their estate and gift plans soon to avoid extra taxes due to the lower exemption amounts coming in 2026.
The law says that in 2026, the estate and gift tax exemption will go back to what it was before 2018, adjusted for inflation. This means less money can be given away or left behind without paying taxes. Before the 2017 Tax Cuts and Jobs Act, the federal estate tax exemption was much lower than today's amount, adjusted for inflation.
These changes make planning ahead very important for people who want to keep as much of their wealth in the family as possible.
Before 2018, families had to be more careful about how much they gave as gifts because of lower exemptions. Now, with these exemptions set to drop again in 2026, everyone needs to think about their estate plans soon.
This ensures they use up the higher exemption available now instead of waiting and facing bigger taxes later.
1. Maximize current gift tax exemptions
To make the most of current gift tax exemptions, start giving away assets now.
The federal gift tax exemption amount is high until the end of 2025. This lets people give more without paying taxes on those gifts. However, gifts exceeding the annual exclusion ($18,000 per recipient in 2024) must be reported to the IRS on Form 709.
You can use your lifetime gift tax exemption or annual exclusion to lower future estate taxes. For example, in 2024 and 2025, you can give a certain amount each year to someone without it counting against your total limit.
A dollar given today can save multiple dollars in taxes later.
Also, consider gifting assets to family or trusts that might grow in value. This way, any increase happens outside your taxable estate. Using your lifetime gift tax exemption now means less tax for heirs later and protects more money from high future estate taxes.
Spousal Lifetime Access Trusts (SLATs) allow one spouse to create an irrevocable trust for the benefit of the other spouse and possibly their children.
This can help maximize gift tax exemptions, lock in today's high exemption levels, and protect against potential future decreases in exemptions.
By leveraging SLATs, couples can utilize each other's lifetime gift and estate tax exemptions to safeguard their wealth from higher taxes that may come into effect in 2026.
When looking to navigate estate planning for the best interests of your family's financial future, it is crucial to understand how SLATs can be a valuable tool.
Establishing Grantor Trusts can be a strategic approach for estate tax planning.
These trusts enable the grantor to transfer assets out of their estate for gift and estate tax purposes while still maintaining a degree of control over the assets.
Grantor Trusts assist in maximizing current gift tax exemptions and provide an opportunity to secure favorable terms before potential changes take effect.
This approach could prove advantageous as there is uncertainty surrounding future exemption levels post-2025, making it wise to seize existing opportunities now.
The unlimited marital deduction is a powerful estate planning tool that allows an individual to transfer an unlimited amount of assets to their U.S. citizen spouse during their lifetime or at death, free from gift or estate taxes.
This provision essentially permits married couples to delay estate taxes until the death of the surviving spouse, providing more time for comprehensive planning.
By strategically using the unlimited marital deduction in conjunction with other planning techniques, couples can maximize the preservation of their combined wealth and potentially reduce the overall tax burden when assets are eventually passed to the next generation.
However, it's important to balance the use of this deduction with other strategies, as over-reliance may lead to a larger taxable estate for the surviving spouse, especially considering the scheduled reduction in exemption amounts in 2026.
Consider gifting low-basis and high-growth potential assets to maximize tax advantages. Make strategic decisions in gifting assets based on their potential for favorable capital gains treatment.
When gifting assets in preparation for tax changes, consider low-basis assets. These are assets with a value closer to the original purchase price. Gifting these can help reduce potential capital gains taxes for your heirs. However, gifting low-basis assets can result in a higher capital gains tax burden for recipients, as they inherit the original cost basis of the asset.
Gifting low-basis assets aligns with the strategy of maximizing current gift tax exemptions and can be beneficial in reducing overall estate tax liabilities. It's an effective way to preserve generational wealth while minimizing potential tax consequences for your heirs when they inherit these assets.
Low-basis assets are a good choice for gifting, but high-growth potential assets can be an even smarter option. These kinds of assets have the potential to significantly appreciate in value over time.
This strategic move not only allows for tax savings in the present but also holds great potential for preserving generational wealth by minimizing tax liabilities when passing on these appreciated assets later.
Presenting high-growth potential assets like stocks or real estate that are expected to increase substantially in value can leverage the current exemption changes. It's an opportunity to make use of this window before any further alterations occur.
While gifting certain assets makes sense in many cases, retaining low-basis assets until death can provide significant tax advantages through the step-up in basis rule.
When assets are inherited (rather than gifted during your lifetime), they receive a "step-up" in basis to their fair market value at the date of death. This means that any appreciation that occurred during the deceased's lifetime essentially escapes capital gains taxation.
For example, if you purchased stock for $10,000 that is now worth $100,000, gifting it during your lifetime would transfer your $10,000 basis to the recipient, who would face capital gains tax on $90,000 when they sell. However, if the same stock is inherited after your death, the basis is stepped up to $100,000, and only appreciation beyond that amount would be taxable when sold.
This strategy can be particularly valuable for highly appreciated assets like real estate or long-held stocks, where the step-up in basis can eliminate decades of built-up capital gains.
Early planning minimizes tax liabilities, preserving generational wealth. It's advisable for future financial security and peace of mind.
Capitalizing on the current estate tax exemption is crucial to reduce tax burdens. Implementing approaches such as maximizing gift tax exemptions and establishing Grantor Trusts can aid in reducing the taxable estate.
Transferring low-basis assets and high-growth potential assets can also prove advantageous for reducing taxes. Early planning is vital to safeguard generational wealth and leverage existing exemptions before potential changes.
Estate planning attorneys and tax advisors play an essential role in tailoring these strategies to individual needs, ensuring that each plan aligns with projected exemption levels.
Your family's assets can remain intact for future generations with proper planning. Early planning is key to minimizing tax liabilities and securing your heirs' financial stability.
Work closely with legal and tax advisors to craft personalized strategies that maximize the current estate tax exemption and navigate complex tax laws effectively.
Incorporating Spousal Lifetime Access Trusts (SLATs) into your estate plan can leverage the higher estate tax exemptions available until 2026, unless legislative changes occur. This proactive approach offers a valuable opportunity to safeguard wealth amid shifting tax provisions.
These professionals are well-versed in intricacies like exemption amounts, gift taxes, and income tax rates.
With major changes scheduled for 2026, they can provide customized strategies to reduce estate tax liabilities and preserve generational wealth through careful planning based on individual needs.
Navigating these tax reforms can be challenging without their expertise, which emphasizes the importance of seeking advanced advice when dealing with your lifetime gift assets.
A Farther financial advisor can help you navigate these changes, develop tax-efficient strategies, and ensure your estate plan aligns with your long-term goals.
It is crucial to emphasize the significance of customizing strategies for individual needs when preparing for changes.
Each person's situation varies, and tailoring these strategies to their specific circumstances is vital. Taking into account factors such as family dynamics, assets, and financial goals is essential in creating effective plans.
Look for an advisor who takes a personalized approach when helping individuals with estate planning. This includes considering their unique financial portfolio, potential tax liabilities, and long-term objectives.
It also aids in addressing intricacies within the ever-changing estate tax laws to secure a strong plan for the future.
Make the most of your gift tax exemptions by strategically timing your gifts and considering which assets—like those with low basis or high growth potential—to transfer. A proactive approach doesn't just reduce your tax burden; it helps build lasting generational wealth.
Consider balancing gifting strategies with the potential for step-up in basis for certain assets, and leverage the unlimited marital deduction when appropriate for your situation.
Don't navigate these waters alone. Partner with experienced professionals who can tailor estate planning strategies to your unique situation, ensuring your plan stays resilient amid changing regulations and market conditions.
The annual gift tax exclusion refers to the maximum amount an individual can give as a gift without incurring a gift tax.
Unless Congress takes action, key exemption levels for federal estate and gift taxes are scheduled to drop significantly in 2026.
Yes, your taxable estate includes all assets you own at death, including life insurance policies—unless ownership has been transferred to an Irrevocable Life Insurance Trust (ILIT) at least three years before passing.
Yes, you can use your lifetime exemption amount to make gifts now and potentially avoid a larger estate tax later if the value of your assets exceeds the exemption level set for that year.
If the total of lifetime gifts and estate assets exceeds the exemption limit, the excess amount is taxed at a progressive rate ranging from 18% to 40%.
Making large gifts before 2026 could take advantage of higher current exemptions and help avoid potential increases in future rates due to changes scheduled for that year.
The step-up in basis is a tax provision that adjusts the cost basis of inherited assets to their fair market value at the time of the owner's death, potentially eliminating capital gains tax on appreciation that occurred during the deceased's lifetime.
The unlimited marital deduction allows an individual to transfer an unlimited amount of assets to their U.S. citizen spouse, either during life or at death, without incurring gift or estate taxes.
