2026 Federal Estate Tax Law Changes Countdown Begins

Estate Planning

As of right now, the rules for federal estate taxes will change on Jan. 1, 2026 — and they could take a bigger bite out of what you leave behind.

The 2025 federal estate tax law exemption, set at $13.99 million per individual (or $27.98 million per couple) in the landmark Tax Cuts and Jobs Act of 2017, is scheduled to revert to its pre-2018 levels on Jan. 1, 2026, unless Congress or the President act. This means the exemption could drop to approximately $7 million per individual (or about $14 million per couple) after being adjusted for inflation.

As a result, more families could be surprised by hefty federal estate tax bills based on a tax rate of up to 40%. Estate plans that were drafted based on the higher estate tax exemption may no longer be optimal or effective. Likewise, gifting strategies to reduce the size of your taxable estate may face challenges if the law changes unexpectedly.

Protect Your Legacy: 10 Steps to Prepare for Potential Federal Estate Tax Changes in 2025

While there is uncertainty around what lawmakers will do this year, you should act now to protect your legacy and your family. Whether you’re just starting to think about estate planning or you already have a plan in place, now is the time to review your options, make smart moves and ensure the people you care about most are taken care of.

Here’s a break down what you need to know and how you can prepare for the changes ahead:

  1. Review and Update Estate Plans: Work with an experienced estate planning attorney, like those at TREEL, to ensure your documents reflect current laws and account for future changes. Consider flexibility in planning, such as creating trusts with provisions that can adapt to changing exemptions.
  1. Utilize the Current Exemption: For those with significant wealth, gifting assets now under the higher exemption may lock in the current thresholds, as the IRS has stated it will not “claw back” gifts made under the higher exemption.
  1. Establish or Update Trusts: Irrevocable trusts, such as Spousal Lifetime Access Trusts (SLATs), can help utilize exemptions while maintaining some access to assets. Dynasty trusts may be useful for transferring wealth to future generations.
  1. Consider Valuation Discounts: Leverage strategies such as transferring interests in family-owned businesses or partnerships to take advantage of valuation discounts, which could reduce the taxable value of gifts. 
  1. Plan for State-Level Taxes: Be aware of state estate or inheritance taxes, which often have lower exemption thresholds than federal taxes. New Jersey doesn’t have an estate tax law, but there are inheritance laws to be aware of.
  1. Monitor Legislative Developments: Stay informed about proposed changes to estate tax laws that could affect future planning strategies. TREEL will continue to monitor legislation and provide updates as developments occur.
  1. Reassess Asset Titling: Ensure assets are titled correctly to maximize exemption usage for married couples. 
  1. Implement Charitable Giving Strategies: Charitable remainder trusts or outright charitable gifts can reduce the size of a taxable estate while fulfilling philanthropic goals.
  1. Maintain Liquidity: Consider how estate taxes will be paid to avoid forcing the sale of assets. Life insurance or liquidity plans can help cover potential tax liabilities. 
  1. Engage Professional Advisors: Work with attorneys, accountants and financial planners focused on estate and tax law to create a comprehensive plan tailored to your circumstances.

Proactive estate planning is the key to navigating the upcoming changes in federal estate tax laws and ensuring your legacy is protected. Don’t wait until the new rules take effect to address potential vulnerabilities in your estate plan. Whether you’re starting from scratch or updating an existing plan, TREEL’s experienced estate planning attorneys are here to guide you every step of the way. Contact TREEL today to schedule a consultation and secure your family’s future with a tailored, forward-thinking estate planning strategy.

federal estate taxes, Taxes

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