Preparing for the Federal Estate Tax Changes

As the seasons shift and we head towards the end of the year, many of us reflect on change. Yet, for high-net-worth individuals and families, there’s an upcoming “sunset” that may impact their financial future—one that’s not found on the horizon but rather in Washington, D.C. The current federal estate tax changes to exemptions is set to be reduced in 2026, and this change could significantly impact how much wealth you can transfer tax-free.

What Does the Estate Tax Sunset Mean?

This “sunset” refers to the expiration of the generous federal estate tax exemption that allows you to transfer a significant amount of wealth to your heirs without incurring estate taxes. For 2023, the exemption stands at $12.92 million per individual (or $25.84 million for a married couple). But in 2026, unless Congress makes further adjustments, this exemption will fall back to an estimated $5 million, adjusted for inflation. This reduction means that estates above this lower threshold could face federal estate taxes of up to 40%, reducing the wealth that reaches your heirs.

What Should You Do to Prepare?

If you’re concerned about the impact of the reduced exemption, now is the time to consider planning strategies to maximize your estate’s efficiency. Here are key steps to help you prepare:

1. Review and Update Your Estate Plan:

Estate planning isn’t a one-and-done process. With major changes on the horizon, reviewing and updating your plan can ensure your wealth is positioned as efficiently as possible. Assessing your assets and re-evaluating your strategies now can help prevent unexpected taxes later.

2. Consider Strategic Gifting:

Making significant gifts while the exemption is high allows you to transfer assets tax-free and reduce the taxable value of your estate. This gifting strategy can be a powerful way to share your wealth and ensure more of it remains with your loved ones.

3. Utilize Trusts to Your Advantage:

Trusts can be excellent tools for preserving and protecting your estate from taxes. They’re not just for the wealthy—they can help secure assets, plan for future generations, and minimize tax liabilities in a highly customizable way.

4. Explore Charitable Contributions:

Incorporating charitable donations into your estate plan can reduce your taxable estate while allowing you to support causes you care about. Charitable giving provides benefits beyond tax savings, leaving a meaningful legacy that aligns with your values.

We’re Here to Help

At Lexern Law Group, we understand that estate planning involves some big decisions. Planning your estate in a way that aligns with your goals takes insight and preparation, and we’re here to guide you through it. Reach out today to schedule a consultation and ensure your estate plan keeps pace with the upcoming changes.