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Protecting Your Legacy from the Upcoming Estate Tax Increases

Protecting Your Legacy from the Upcoming Estate Tax Increases

January 09, 2024

One of the key ways we support families is through the thoughtful journey of estate planning. Now, as we approach a significant shift in how estates will be taxed, crafting smart, tax-efficient strategies is becoming increasingly vital for many.

At its heart, estate planning is about organizing and safeguarding your assets to ensure they pass on to your loved ones, whether in unexpected times of need or after you're gone. It’s about peace of mind, ensuring that the most substantial portion possible of what you've worked hard for benefits those you care about and is not lost to taxes. Effective estate planning can help ensure financial security for your loved ones to help avoid surprises or delays.

And without action, estates valued above the new exemption levels may be subject to a 40% tax. Let’s dive into what the upcoming sunset could mean for you and how to plan for it.


Introduction to the 2026 Estate and Gift Tax Exemption Sunset

The 2026 estate tax exemption sunset marks a crucial shift in U.S. tax law, stemming from the Tax Cuts and Jobs Act of 2017. This act temporarily doubled the estate and gift tax exemption limits, allowing individuals to transfer substantial amounts – up to about $13 million without incurring federal taxes, with the amount doubled for married couples.

However, these increased limits are set to revert to their pre-2017 levels in 2026, adjusted for inflation, which could be around $7 million for individuals and $14 million for married couples. This change is significant for estate planning because some currently non-taxable estates might face notable tax liabilities unless they adapt their plans intelligently.


How to Start with Estate Planning

Now that we’ve covered the urgency of adapting to the 2026 estate tax exemption changes, let’s take a closer look at where to begin your plan. 

If you haven’t worked on estate planning (or it’s been a few years since you have visited your plan), we recommend that you first get a clear picture of your goals. Those may include distributing your assets, providing for those you currently care for, charitable wishes, and healthcare.

From there, you can make a list of all your assets including tangible and intangible items to understand the value of your estate. Common assets consist of real estate, businesses, life insurance policies, and so on. 

Then, it’s time to get to work on establishing directives, setting up trusts, shoring up insurance policies, creating a gifting strategy, and other plans. All the while, being aware of tax implications is critical.  


Use It or Lose It: Maximizing Lifetime Gifting

Lifetime gifting is a way to help people distribute assets to their heirs while decreasing the size of their taxable estate. At present, you can gift up to about $18,000 per person each year without affecting your lifetime tax exemption. These gifts can help because once given, they're typically not considered part of your estate for tax purposes. What's more, married couples can make the most of this opportunity, as they can share their gift tax exemption, essentially doubling the amount they can give together. 

This too, is on the brink of change – with limits effectively cut in half. This creates a pivotal "use it or lose it" scenario, urging many to make the most of higher gifting limits while they can.


Why Start Planning Now

2026 can feel like the distant future. However, we cannot stress enough the importance of revising your estate planning now. We’re in a window of opportunity where the higher exemption limits can be utilized to your advantage.

This planning and action can not only help secure your financial legacy but also ensure that your assets are managed and distributed according to your specific wishes. Waiting could result in facing higher tax rates. Plus, as these changes approach, financial advisors and estate planners are becoming increasingly sought after, making it critical to secure professional advice sooner rather than later.

Let's work together now to take full advantage of the current tax benefits, crafting a plan that aligns with your long-term goals and provides peace of mind that your estate is well-prepared for the future. Acting quickly today is a move for tomorrow’s financial security.

Contact us today for help with your estate plan. With a full team of tax and wealth management experts, we can help you make intelligent choices for your financial future.