Gifting Strategies To Help You Get Ahead of 2026 Estate Tax Changes

In about a year the lifetime estate and gift tax exemption is set to significantly decrease, unless Congress acts to prevent it. The exemption will drop from $13.61 million per person to approximately $7 million to $7.25 million. For married couples, the exemption will reduce from $27.2 million to about $14 million to $14.5 million (link in footnote). Any estate assets that exceed these limits will incur a 40% federal estate tax.

While this change isn’t immediate, it’s wise to revisit your estate plan now to avoid a rush on last-minute adjustments in 2025, when financial advisors expect to be in high demand.

Strategies to Minimize Estate Taxes through Gifting Before the 2026 Estate Tax Changes

To help lessen the tax impact on future heirs, consider adopting a well-planned gifting strategy. Thoughtful gifting allows individuals to transfer assets in a way that minimizes taxes for the next generation.

Here are four effective approaches:

1. Maximize Annual Gifts: Individuals can make annual, tax-free gifts up to $18,000 ($36,000 for couples) per recipient without affecting their lifetime exemption. Gifts can go to family members or friends in cash or property form.

Additionally, contributions to 529 college savings plans are eligible. Parents or grandparents can contribute up to five years’ worth ($90,000) of gifts for a 529 beneficiary without incurring gift taxes or affecting the lifetime gift tax exclusion.

1. Use an Intentionally Defective Grantor Trust (IDGT): This type of trust removes assets from the grantor’s estate, with the income generated by the assets taxed to the grantor, not the trust. This setup allows the assets in the trust to grow tax-free for beneficiaries, as the trust itself doesn’t pay tax on its income.
2. Establish Spousal Lifetime Access Trusts (SLATs): In a SLAT, one spouse creates an irrevocable trust for the benefit of the other, which allows some control over assets while reducing tax exposure. Each spouse can create a SLAT, though they must differ to avoid IRS challenges based on reciprocal trust doctrine.
3. Consider a Grantor Retained Annuity Trust (GRAT): GRATs hold assets expected to increase in value, such as stocks or a business, and pay the grantor an annuity over the trust term. When the trust expires, remaining assets transfer to beneficiaries without using the estate and gift tax exemptions.

With these pending changes to exemption limits, many families would benefit from reevaluating their estate planning tools with the help of a professional to maximize tax savings for future generations.

Footnote

HUB Southwest’s retirement and private wealth advisors provide a range of services for both organizations and individuals. They offer institutional and retirement solutions tailored to the needs of both for-profit and nonprofit organizations, as well as personalized private wealth management services for individuals and families.

HUB Retirement and Private Wealth employees are Registered Representatives of and offer Securities and Advisory services through various Broker Dealers and Registered Investment Advisors, which may or may not be affiliated with HUB International. Insurance services are offered through HUB International, an affiliate.

This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

 

Link for article footnoted in first paragraph  – https://www.eidebailly.com/insights/articles/2020/7/estate-and-gift-tax-are-you-prepared-for-changes