Estate Tax Planning: Key Changes and Strategies as 2026 Approaches

Estate Tax Planning: Key Changes and Strategies as 2026 Approaches

June 10, 2024

As we approach 2026, it is crucial to understand the upcoming changes and their potential impact on estate taxes and planning.

Tax Cuts and Jobs Act (TCJA)

The 2017 Tax Cuts and Jobs Act (TCJA) significantly changed the legislation surrounding Federal estate and generation-skipping taxes (GST). These favorable changes will sunset at the end of 2025, meaning the estate tax and GST rules will revert to pre-2018 levels unless new legislation extends or alters them.

Current Rules Under TCJA for Federal Estate Tax

The TCJA temporarily doubled the federal estate tax exemption, significantly reducing the number of estates subject to the tax. For 2024, the exemption amount is $13.61 million per individual ($27.22 million per couple), indexed for inflation. Only estates exceeding this amount are subject to the federal estate tax levied at 40%.

Current Post-2025 Changes

Unless Congress extends or modifies the current law, the estate tax exemption will revert to pre-TCJA levels starting January 1, 2026. The exemption amount will drop to approximately $5.49 million per individual (adjusted for inflation from the 2017 base year). This significant reduction means that many more estates will be subject to federal estate taxes.

Current Rules Under TCJA Generation-Skipping Tax (GST)

The GST exemption was also doubled under the TCJA, matching the estate tax exemption amount. For 2024, the GST exemption is also $13.61 million per person. The GST prevents the avoidance of estate taxes through transfers that intend to skip a generation (who would otherwise be subject to the Federal estate tax), such as from grandparents directly to grandchildren.

Post-2025 Changes

Like the estate tax, the GST exemption will revert to pre-TCJA levels. The exemption will decrease to approximately $5.49 million per individual (adjusted for inflation). As a result, more transfers could be subject to the GST, potentially increasing the tax burden on multi-generational wealth transfers.

Planning Considerations

Given the impending changes, individuals and families with significant assets should consider acting now to take advantage of the current, more significant exemption amounts. Using standard planning techniques, you can take advantage of the current tax law before the expected change on January 1, 2026.

Review and Update Your Estate Plan Now

Existing estate plans, including trusts, wills, and other estate planning documents, should be reviewed to ensure they align with the upcoming changes. For personalized advice and strategies tailored to your specific situation, please call Bill Hufnell at 410-271-2154 or email Bill at bhufnell@baypointwealth.com.