will estate tax change in 2026

3 min read 14-03-2025

Meta Description: Facing uncertainty about estate tax changes in 2026? This comprehensive guide explores the potential shifts, the current exemption amounts, and what you can do to prepare. Learn about the impact on high-net-worth individuals and families, and discover proactive strategies for estate planning. Don't get caught off guard—understand the future of estate tax and protect your legacy.

Introduction:

The future of estate tax is a significant concern for many high-net-worth individuals and families. Current laws set a sunset provision for the increased estate and gift tax exemption amounts, meaning they're scheduled to revert to significantly lower levels in 2026. This article explores the potential changes and what you can do to prepare. Understanding the implications of these potential changes is crucial for effective estate planning.

Current Estate Tax Laws and Exemptions

As of 2023, the federal estate tax exemption is quite high. However, this is temporary. The Tax Cuts and Jobs Act of 2017 doubled the exemption. It's currently set at $12.92 million per individual ($25.84 million for married couples). This means estates below this amount are generally not subject to federal estate tax. Beyond this, the tax rate is a flat 40%.

What Happens if the Estate Tax Changes in 2026?

The current higher exemption amounts are set to expire at the end of 2025. Unless Congress acts, these will revert back to their pre-2018 levels. This means a substantial decrease in the exemption amount and a likely increase in the number of estates subject to tax.

Reduced Exemption: The exemption is projected to decrease to approximately $5 million per individual ($10 million for married couples).
Increased Tax Burden: More estates will fall under the estate tax threshold, resulting in a greater tax burden for many families.
Potential for Higher Rates: While the 40% tax rate may remain the same, the lower exemption could lead to a higher effective tax rate for many.

Potential Scenarios and Congressional Action

Predicting the future is difficult, particularly with legislation. Several scenarios are possible:

No Action: Congress may choose to take no action, resulting in the automatic reversion to lower exemption levels in 2026.
Extension: Congress could extend the current higher exemption amounts beyond 2025.
Reform: Complete reform of the estate tax system is also a possibility, perhaps with adjustments to both the exemption and the tax rate.

How to Prepare for Potential Estate Tax Changes

Uncertainty about future estate tax laws makes proactive planning essential. Here are some strategies:

Gifting: Consider gifting assets to heirs while the exemption remains high. This can reduce the taxable estate's size. (Remember gifting has its own tax considerations!)
Trusts: Establishing irrevocable trusts can help protect assets from estate taxes and provide for efficient distribution to beneficiaries.
Insurance: Life insurance policies can offset estate taxes and provide financial security for heirs.
Diversification: Diversifying your asset holdings can help manage risk and potential tax liabilities.

Frequently Asked Questions (FAQs)

Q: What is the current estate tax rate?

A: The current federal estate tax rate is a flat 40% for amounts exceeding the exemption.

Q: When are the current estate tax laws set to expire?

A: The current higher exemption amounts are set to expire at the end of 2025.

Q: What should I do to prepare for potential changes?

A: Consult with an estate planning attorney to develop a personalized strategy, potentially including gifting, trusts, and insurance.

Conclusion: Planning for the Unknown

While the future of the estate tax remains uncertain, proactive planning is crucial. Don't wait until 2026 to address these potential changes. Consult with a qualified estate planning professional to assess your individual circumstances and develop a tailored strategy to protect your legacy and minimize potential tax liabilities. The potential impact of the 2026 changes on your estate should not be underestimated. Taking action now can offer significant peace of mind.