The current federal estate and gift tax exemption is $12.92 million per person and $25.84 million per married couple for 2023. This means that you can transfer this amount of wealth to your heirs or beneficiaries without paying any federal estate or gift tax. However, this generous exemption is set to expire at the end of 2025 and revert to $5 million per person and $10 million per married couple (adjusted for inflation) in 2026. This could result in a significant increase in your estate tax liability if you do not plan ahead.

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Fortunately, there are strategies that you can use to take advantage of the current exemption and reduce your future estate tax exposure.

  • Make large gifts soon – One of the simplest ways to use the current exemption is to make outright gifts to your family members or other beneficiaries before 2026. This will remove the gifted assets and their future appreciation from your taxable estate. You can also use trusts to make gifts with more control and protection, such as irrevocable life insurance trusts (ILITs), grantor retained annuity trusts (GRATs), or charitable remainder trusts (CRTs). You should balance the benefits of a large gift with the costs related to your heirs losing the capital gain benefit should they inherit the property at death.
  • Use spousal trusts – If you are married, you can use trusts to benefit your spouse and still preserve the exemption for both of you. For example, you can create a spousal lifetime access trust (SLAT) that allows your spouse to access the trust assets during his or her lifetime, while keeping them out of both of your estates. Alternatively, you can create a spousal preservation access trust (SPAT) that gives your spouse a limited power of appointment over the trust assets, which can be exercised in favor of your children or other beneficiaries.
  • Create a dynasty trust – A dynasty trust is a long-term trust that can last for multiple generations and avoid estate taxes at each transfer. You can use the current exemption to fund a dynasty trust and provide a lasting legacy for your descendants. A dynasty trust can also offer asset protection and flexibility for changing circumstances. Dynasty trusts are ideal for very wealthy families.
  • Review your existing estate plan – If you have an existing estate plan that was created before the 2017 Tax Cuts and Jobs Act (TCJA), you may want to review and update it to reflect the current law and your goals. For example, you may want to modify your will or trust to avoid funding a credit shelter trust (CST) or a bypass trust that is no longer necessary or optimal under the current exemption. You may also want to revisit your beneficiary designations, powers of attorney, and health care directives.

These are just some of the estate planning opportunities that you can explore before the 2026 estate tax changes. However, every situation is unique and requires careful analysis and guidance from a qualified professional. Therefore, we recommend that you consult with your attorney, CPA, and financial advisor to discuss your specific needs and options.