Estate planning is not on the top of the “to-do” list for most people. We are focused on enjoying our daily lives, not on planning for what happens after our passing. However, estate planning can save families significant money as well as stress and frustration. And with an upcoming law change, we will hear much more about estate planning in the coming weeks and months.
Background
Estate taxes, often referred to as the “death tax,” have long been a topic of political debate and financial planning. These taxes apply to the transfer of property after an individual’s death and can affect large estates. In recent years, the federal estate tax exemption has been historically high, but changes are on the horizon. Understanding the current state of the law and upcoming changes in 2026 is crucial for individuals who may be impacted.
The Current State of Estate Tax Law
As of 2024, the federal estate tax exemption sits at $13.61 million per individual or $27.22 million for married couples. This means estates under this threshold are not subject to federal estate tax. Estates exceeding this amount are taxed at a rate of 40%. The high exemption limit has dramatically reduced the number of estates subject to the tax, allowing many families to transfer wealth across generations without paying estate taxes.
The current estate tax framework was established under the 2017 Tax Cuts and Jobs Act (TCJA), which nearly doubled the exemption from previous levels. This temporary increase has provided significant benefits to high-net-worth individuals, allowing more wealth to be passed on without taxation.
What Will Happen in 2026?
On January 1, 2026, the estate tax exemption is set to revert to pre-2018 levels. The TCJA provisions that increased the exemption amount will expire at the end of 2025 unless Congress takes action to extend or modify the law. Without intervention, the federal estate tax exemption will drop dramatically (expected to be around $7 million in 2026). This reduction will affect far more estates, triggering estate tax liabilities for families who were previously exempt. However, the estate tax rate is expected to remain at 40% for amounts exceeding the exemption.
How to Prepare for the 2026 Changes
For those with large estates, proactive estate planning can be crucial before the new law takes effect.
- Gifting During Lifetime: Under current law, individuals can use their lifetime gift tax exclusion, which is tied to the estate tax exemption at the historically high amount of $13.61 million per individual. Making large gifts before the exemption falls could help reduce the value of the taxable estate.
- Trusts and Advanced Estate Planning Techniques: Trusts, such as irrevocable life insurance trusts (ILITs) or grantor retained annuity trusts (GRATs), can help shelter wealth from the estate tax. These tools can freeze the value of assets or reduce estate taxes in other ways.
- Review of Wills and Estate Plans: Existing estate plans may need to be adjusted to reflect the lower exemption, ensuring that families are not unexpectedly hit with estate taxes.
Possible Legislative Changes
While the current law stipulates that the exemption will be reduced in 2026, there is always the possibility that Congress may act before that date. Given the political nature of tax policy, the estate tax could be revisited in future legislative sessions. A different administration could advocate for either further increases to the exemption or even for stricter limits on exemptions and higher taxes on large estates.
Conclusion
The estate tax landscape is poised for a significant shift in 2026, with the potential to affect many families who previously fell under the exemption. As the exemption amount is set to drop sharply, it is essential for individuals with substantial estates to engage in thoughtful planning before these changes take effect. Consulting with an estate planning professional can ensure that your assets are protected, and your family’s wealth is managed in the most tax-efficient manner possible.
While the political climate surrounding estate taxes remains uncertain, staying informed about changes in the law will be key to preserving your financial legacy.
Wealthspire has deep expertise in estate planning. Our team is well-versed on the current estate tax regulations and can help families navigate the impact that a change in regulations may have on their family’s wealth. Contact us to learn more about the upcoming tax law change and how we can help you.
Wealthspire Advisors is the common brand and trade name used by Wealthspire Advisors LLC and its subsidiaries, separate registered investment advisers and subsidiary companies of NFP Corp., an Aon company.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is considered to be reliable, Wealthspire Advisors cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. If the reader chooses to rely on the information, it is at reader’s own risk.
Wealthspire Advisors and its representatives do not provide legal or tax advice, and Wealthspire Advisors does not act as law, accounting, or tax firm. Services provided by Wealthspire Advisors are not intended to replace any tax, legal or accounting advice from a tax/legal/accounting professional. The services of an appropriate professional should be sought regarding your individual situation. You should not act or refrain from acting based on this content alone without first seeking advice from your tax and/or legal advisors.
Certain employees of Wealthspire Advisors may be certified public accountants or licensed to practice law. However, these employees do not provide tax, legal, or accounting services to any of clients of Wealthspire Advisors, and clients should be mindful that no attorney/client relationship is established with any of Wealthspire Advisors’ employees who are also licensed attorneys.
Please Note: Limitations. The achievement of any professional designation, certification, degree, or license, recognition by publications, media, or other organizations, membership in any professional organization, or any amount of prior experience or success, should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results or satisfaction if Wealthspire is engaged, or continues to be engaged, to provide investment advisory services.
The Center for Fiduciary Studies owns the mark AIF®, which it awards to individuals who successfully complete initial and ongoing accreditation requirements.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
