12/25/2025
As we approach 2026, this is an ideal time to review your estate plan. The federal estate and gift tax exemption will change next year, and these adjustments may affect how much of your wealth can ultimately pass tax-free to your family. Even if you’re not expecting to be directly impacted, it’s still important to confirm that your documents, beneficiary designations, and planning strategies remain aligned with your goals.
Here are highlights of the upcoming changes and why they matter. This summary will give you a clear sense of what’s shifting and what opportunities may be worth considering.
We recommend a brief review meeting or telephone call so we can walk through the updates together and determine whether any adjustments are appropriate.
1. Federal Estate, Gift & GST Tax Exemption
The TCJA’s temporary higher exemption was scheduled to drop by half on January 1, 2026.
OBBBA eliminates the sunset and instead sets the exemption at $15 million per individual (≈$30M for married couples with portability).
Exemptions will continue to adjust annually for inflation beginning in 2027.
2. Federal Estate, Gift & GST Tax Rates
The 40% top federal tax rate remains unchanged.
Transfers above the exemption (during life or at death) are still subject to this rate.
3. Impact Across Wealth Levels
Middle-wealth and emerging-wealth families now have more cushion under the higher exemption.
Higher-wealth families still face meaningful exposure and may need proactive planning to reduce taxable estates.
State estate and inheritance taxes remain relevant for many households, regardless of federal exemption levels.
4. Lifetime Gifting Opportunities
Because the exemption is increasing to $15M, clients who used most of their prior exemption will have additional gifting capacity in 2026.
Gifting removes both today’s asset value and all future appreciation from the taxable estate.
Consider gifting to irrevocable trusts for asset protection and income-tax positioning.
5. Annual Gift Exclusion
The annual exclusion remains $19,000 per recipient for 2025 and 2026 (inflation-adjusted after).
6. Planning Environment in 2026
More families will be out of the federal estate tax system, but many will still face state-level estate or inheritance taxes.
Clients should continue to maintain core documents: wills, powers of attorney, healthcare directives, and revocable trusts.
The planning focus shifts from “avoiding sunset” to leveraging the permanent higher exemption effectively.
7. Legislative Uncertainty
Although the current law makes the higher exemption “permanent,” Congress can change the rules in the future.
Clients should view 2026–2027 as a strategic planning window to lock in flexibility, remove appreciating assets, and strengthen their estate structure.
8. Key Takeaway for Clients
The 2026 changes create a more favorable federal landscape, but thoughtful planning still matters. Families at all wealth levels benefit from reviewing their estate plan, evaluating state tax exposure, updating documents, and considering strategic lifetime gifts.
