As we approach 2026, estate planning faces significant shifts with the impending changes to federal estate tax laws. The sunset of the Tax Cuts and Jobs Act (TCJA) provisions will see a decrease in the estate tax exemption limits, profoundly affecting how individuals and families plan for the future. Understanding these changes and adjusting your estate planning strategies is crucial to protect your assets and ensure your legacy.
Key Takeaways:
- The federal estate tax exemption limits are set to decrease significantly in 2026, reverting to approximately $6 to $7 million per individual.
- This reduction will expose more estates to federal estate taxes, potentially increasing the tax burden for heirs.
- Effective planning strategies such as lifetime gifting, trust formation, and utilizing portability must be considered to mitigate these impacts.
- Proactive adjustments to estate plans are essential to leverage current exemptions before they decrease.
Understanding the Changes Coming in 2026:
The TCJA’s temporary provisions are set to expire at the end of 2025, leading to a major reduction in the federal estate tax exemption. Here’s what you need to know about these changes:
- Exemption Reduction: The exemption amount will revert from $13.61 million per individual and $27.22 million per married couple to around $6 to $7 million per individual, adjusted for inflation. This reduction nearly halves the amount that can be passed on tax-free, potentially subjecting more estates to federal estate taxes.
- Impact on Gifting: The reduction will also affect lifetime gifting strategies, as the amount you can gift without incurring taxes will decrease significantly. Strategic gifting before this change takes effect could be beneficial.
- Trusts and Valuation Discounts: Proposed changes may affect irrevocable grantor trusts and valuation discounts for non-business assets, potentially altering the effectiveness of certain estate planning tools like GRATs and FLPs.
Proactive Strategies to Consider:
To mitigate the impact of the 2026 estate tax changes, consider the following strategies:
- Lifetime Gifting: Maximize the current higher exemptions by making significant gifts before the end of 2025. This approach can help reduce your taxable estate and leverage the higher limits available now.
- Establishing Trusts: Consider setting up SLATs, DAPTs, or other types of trusts that can help minimize your estate’s tax liability while providing for your heirs.
- Utilizing Portability: Ensure that if one spouse passes away before the changes take effect, the surviving spouse can utilize the deceased spouse’s unused exemption amount through portability, maximizing the couple’s combined exemptions.
- Annual Gift Tax Exclusion: Continue leveraging the annual gift tax exclusion, which allows you to give $18,000 per recipient in 2024 without affecting your lifetime exemption.
The 2026 changes to the estate tax laws necessitate a thorough review and possible recalibration of your estate plans. By understanding these changes and consulting with estate planning professionals, you can take proactive steps to safeguard your assets and ensure your estate planning objectives are achieved.
Get Help Today with Hurban Law, LLC in Lawrenceville, GA
Don’t wait until it’s too late to revise your estate plan. Contact Hurban Law today to schedule a consultation and begin adapting your estate strategy to the upcoming tax changes. Ensure your assets are protected and your legacy is preserved under the new tax regulations.
