Pinnacle Estate Planning

By JASON GRAY

Pinnacle Law PLLC

    As the calendar inches closer to 2026, many individuals are facing the potential return of stricter federal estate tax rules. The current federal estate tax exemption, which allows individuals to pass on up to $13.61 million without incurring estate tax, is set to sunset on January 1, 2026. Without further action from Congress, the exemption will drop to approximately $5.49 million per individual, adjusted for inflation. For married couples, this means a combined exemption of roughly $11 million, compared to the current $27.22 million.

    This reduction in the exemption threshold could have a significant financial impact on individuals with substantial estates. For estates that exceed the new limits, the federal estate tax rate could be as high as 40%. For those who have carefully planned their financial legacy based on current laws, this change presents a major risk that could reduce the amount left to heirs.

    The potential for these changes makes it crucial for individuals to review their estate plans with their attorneys before the end of 2025. Proper planning now could help mitigate the effects of the lowered exemption and ensure that more of your assets are protected from the heavy burden of estate taxes.

    One effective strategy to consider is creating or updating irrevocable trusts. Irrevocable trusts allow individuals to remove assets from their estate, reducing the taxable value and potentially minimizing the tax burden when the exemption decreases.   For example, by placing high-value assets like stocks, bonds, or property into a trust, you can ensure that their growth remains outside of your taxable estate. Some families may also explore gifting strategies to pass on wealth during their lifetime, taking advantage of the current gift tax exclusion of $18,000 per person per year. This method can significantly reduce the size of an estate over time, leaving less to be taxed when the exemption drops.

    For individuals with estates currently valued between $5 million and $25 million, now is the time to act. Failing to review and adjust estate plans in light of the upcoming changes could leave loved ones facing unexpected taxes on their inheritance.

    If you haven’t yet had a recent review of your estate plan, now is the time to schedule a meeting with your estate planning attorney. They can help guide you through the complex landscape of tax law and recommend strategies that will allow you to pass on your assets in the most tax-efficient manner possible. Don’t wait until 2026—planning today can make all the difference in protecting your legacy for future generations.

*This article is for informational purposes only and should not be construed as legal or financial advice.