Now is the Time to Plan for 2026

The current estate and gift tax exemption, also known as the unified credit, is the amount a person can transfer to a non-spouse U. S. citizen free of estate or gift tax. In 2024 the exemption will be $13.61 million, but it is scheduled to sunset in 2026 to approximately half that amount. Barring an act of Congress, and signature by the soon-to-be elected President, the unified credit will be significantly less than it is right now. However, clients with estates in excess of approximately $7 million (the estimated exemption amount in 2026 assuming the sunset goes through) can make use of this larger exemption amount now.

Planning to utilize the existing exemption amount will be time intensive. It is imperative to explore proactive measures early enough to  use the existing estate tax exemption. Advanced estate planning tools such as Spousal Lifetime Access Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), and Domestic Asset Protection Trusts (DAPTs) offer viable strategies to protect your assets and maximize the utilization of the unified credit.

SLATs provide a means for spouses to establish irrevocable trusts, allowing one spouse to transfer assets into the trust for the benefit of the other spouse and future generations. This approach effectively uses the current estate tax exemption while allowing the donee spouse access to trust assets.

GRATs enable individuals to transfer appreciating assets into an irrevocable trust for a predetermined period, with the grantor retaining an annuity interest. Upon the GRAT’s expiration, any remaining assets pass to designated beneficiaries, potentially reducing estate tax liabilities to the grantor’s estate

DAPTs enable the grantor to establish a trust for his or her own benefit while safeguarding assets.

By employing these sophisticated estate planning techniques before the potential sunset of the estate tax exemption in 2026, individuals can safeguard a significant portion of their estate from potential changes in tax laws. Utilizing these tools strategically can preserve wealth, protect assets, and ensure financial security for future generations. However, there is no one size fits all approach. Implementing these techniques takes a significant investment of time and analysis by the client and the attorney. Trying to implement advanced estate planning in the midnight hour of 2025 will likely be too late.

If you believe that planning for this potential sunset is something that applies to you, we encourage you to schedule a Generations review to explore these advanced estate planning options further.