HOW TO COMPARE CREDIT BUILDER APPS IN 2024

Major changes are ahead for individuals and families looking to preserve their wealth across generations. Due to the scheduled sunset of the Tax Cuts and Jobs Act (TCJA) on January 1, 2026, federal estate, gift, and generation-skipping transfer (GST) tax exemptions are expected to drop significantly—unless Congress intervenes.

Currently, the federal exemption stands at $13.61 million per person, but it's projected to revert to about $7 million (adjusted for inflation) in 2026. This creates a critical, time-limited opportunity for high-net-worth individuals to leverage current exemption limits before they shrink. Let’s break down what this means and how you can act now to ensure a strategic, tax-efficient legacy plan.

🏛️ What Are the Federal Estate, Gift, and GST Tax Exemptions?

Estate Tax Exemption

This is the amount you can pass on to heirs without triggering federal estate tax. For 2024 and 2025, it’s $13.61 million per person, or $27.22 million for married couples. Anything above that is taxed at a flat 40% rate.

Many states also impose separate estate or inheritance taxes, which could add to the burden. Learn more about state-level differences here.

Gift Tax Exemption

The gift tax exemption is unified with the estate tax. This means that any gifts made during your lifetime reduce the amount you can transfer tax-free at death.

You can also give up to $18,000 per recipient annually (or $36,000 per couple) under the annual gift tax exclusion, which does not count against your lifetime exemption.

Generation-Skipping Transfer (GST) Exemption

This applies when transferring wealth to grandchildren or beyond, skipping a generation. It prevents individuals from avoiding estate tax on each generational transfer. Like the others, this exemption is currently $13.61 million but will likely fall to around $7 million in 2026.

⏳ What’s Changing in 2026?

Unless legislative action is taken, the enhanced exemptions enacted under the TCJA will expire on January 1, 2026. The exemptions will return to their pre-2018 levels of $5 million, indexed for inflation (expected to be around $7 million).

That means any unused portion of today’s exemption could be permanently lost—and your estate could face millions in additional taxes.

📌 Example:

Let’s say your estate is valued at $20 million.

• If you act in 2025 and use the full $13.61M exemption, only $6.39M is taxable, resulting in about $2.56M in estate tax.
• If you wait until 2026, when the exemption drops to ~$7M, then $13M is taxable, and your estate owes $5.2M in taxes.

That’s a $2.64 million difference—just for waiting.

💼 Tax Solutions You Can Use Now

1. Lifetime Gifting

Using the annual gift tax exclusion is an easy, recurring strategy to reduce your estate tax burden. There’s no limit on how many individuals you can gift to in a given year.

For larger transfers, high-net-worth individuals should consider using a portion—or all—of their $13.61M exemption while it’s available. The IRS has confirmed that gifts made now won’t be “clawed back” after 2026. Read more here.

2. Irrevocable Life Insurance Trust (ILIT)

Without proper planning, life insurance proceeds are included in your taxable estate. An ILIT owns the policy on your behalf, shielding the proceeds from estate and GST taxes. It’s a common and effective estate planning tool.

3. Dynasty Trusts

Dynasty trusts allow you to transfer assets across multiple generations while removing those assets—and their future appreciation—from your taxable estate. You can apply both gift and GST exemptions when funding the trust.

States like South Dakota, Nevada, and Delaware are known for favorable dynasty trust laws. Explore their benefits here.

4. Spousal Lifetime Access Trust (SLAT)

With a SLAT, one spouse gifts assets to an irrevocable trust for the benefit of the other. The assets are removed from the grantor’s estate, but the family still benefits from the trust distributions.

This strategy offers tax relief and financial flexibility, making it ideal for couples unsure about giving up access to gifted assets.

🛑 Why Waiting Could Cost You

The bottom line? Every month that passes brings us closer to the 2026 sunset. Waiting could result in a much higher tax burden and significantly fewer assets transferred to your heirs.

If your net worth is close to or above $7 million, consider meeting with a qualified estate planning attorney or tax advisor to explore options tailored to your situation.

Need help getting started? Check out the IRS Estate Tax FAQ or speak with a licensed advisor who can walk you through your options.

✅ Final Thoughts

2026 might feel far away—but when it comes to estate planning, timing is everything. The opportunity to leverage historically high exemptions is narrowing fast. Whether through gifting, trusts, or other advanced tax strategies, acting now could save your estate—and your heirs—millions in federal taxes.

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