Estate Tax Exemptions Set to Drop by 50% in 2026: Are You Ready?
Many More People Will Owe Estate Taxes Upon Death Without Appropriate Planning
Your estate plan may not be as buttoned up or airtight as you think. In fact, it could be vulnerable to greater estate tax liabilities than you thought IF you planned around certain exemptions that are set to expire in 2026.
Those sunsetting laws will drastically change federal estate tax exemptions if no new legislation is passed between now and Jan. 1, 2026.
Is your estate plan ready for these changes?
Do you need to devise or revise an estate plan now in anticipation of the expiring estate tax exemptions?
Let’s start answering those questions by looking at:
Contact an Austin estate planning attorney if you need answers now — or if 2026 is right around the corner.
Why & How Estate Tax Exclusions Will Decline in 2026
On January 1, 2026, current estate tax exemptions could be history because:
- They were set up by the 2017 Tax Cuts and Jobs Act (TCJA): When enacted, the TCJA practically doubled the exemptions for estate and gift taxes. At the time, individual estate tax exemptions were at $5.6 million per individual; with the TCJA, they rose to $11.18 million (2018). Similarly, estate tax exemptions for married individuals rose from $11.18 million to $22.36 million (2018). Since then, these exemptions have changed annually, with adjustments made for inflation ($12.92 million and $25.84 million as of 2023).
- Parts of the TCJA will expire as of Jan. 1, 2026: With this, the estate and gift tax exemptions will revert to their 2017, pre-TCJA levels, adjusted for inflation. That could be roughly $7 million for individuals and around $14 million for married couples. Keep in mind that new laws passed before 2026 could sideline this issue by extending current exemptions or establishing new ones.
The table below boils all this down to the numbers, showing exactly what those changes could look like for single individuals versus married couples. Please note that all 2024 to 2026 estate tax exemption numbers are estimated projections only, assuming an annual inflation rate of around 8%.
|Status||2023 Estate Tax Exemptions||2024 Estate Tax Exemptions (projected)||2025 Estate Tax Exemptions (projected)||2026 Estate Tax Exemptions (projected)|
|Individuals||$12.92 million||$14 million||$15 million||$6 million to|
|Married||$25.84 million||$28 million||$30 million||$12 million to|
If 2026 estate tax exemptions do end up reverting to 2017 levels, that could mean:
- The strategies you used for estate tax mitigation don’t have the intended outcomes: If your estate plan relied on sunsetting estate tax exemptions, you may not have made the best plans for managing potential estate tax liabilities.
- Your estate could be exposed to steep tax rates: Without the right estate planning devices and strategies in place, your estate could be subject to tax rates as high as 40% (if nothing changes between now and 2026).
How to Respond to Upcoming Changes in Estate Tax Exemptions
If your estate could be vulnerable to greater tax liabilities with the sunsetting estate tax exemptions, don’t worry — there’s good news if you’re reading this before 2026.
You CAN take action before the laws change to make sure your estate plan is ready for the future. And it doesn’t take all that much effort to get ahead of this issue. Simply:
- Review your estate plan and gifting strategies: Go over the details of your will, trusts, charitable giving, and more. Revisit why you put different terms, devices, and strategies in place, critically considering whether those remain viable in light of the probable changes to estate tax exemptions in 2026.
- Talk to an estate planning lawyer: Whether or not you have an estate plan in place, consult with an attorney for answers that relate to your needs, circumstances, and objectives. There could be better options for mitigating estate tax liabilities, even if you have a solid estate plan in place. If you don’t, there’s no better time than now to start devising one.
How to Address Estate Tax Exemptions & Liabilities: 5 Smart Strategies
The options for getting ahead of the 2026 estate tax exemption changes will vary from estate to estate and individual to individual. That’s because there are various strategies available — and the more you know about the options, the better equipped you’ll be to make more informed choices for your estate plan and your beneficiaries.
To that end, here are a handful of devices that could be incredibly useful to put in place ahead of the 2026 estate tax exemption change.
- Irrevocable Life Insurance Trusts (ILITs): Offering a way to exclude life insurance policies from estates, ILITs can be set up to shield death benefits and life insurance proceeds from federal estate taxes. With ILITs, grantors can fund trusts with existing life insurance policies, or these policies can be taken out via the trust itself; in other words, ILITs can be set up before or after taking out life insurance policies. Notably, however, if existing life insurance policies are used to fund ILITs, a 3-year waiting period may apply, meaning the life insurance policy can remain part of an estate during that waiting period, only transferring to the trust’s ownership after that period has passed.
- Grantor Retained Annuity Trust (GRATs): As irrevocable trusts, GRATs can be funded with various assets, letting the grantor draw some annuity payment from the trust while leaving the remaining assets for the designated beneficiaries. Typically, GRATs are set to expire after some period. When the GRAT is active, the grantor draws annuity payments that usually are equivalent to the value of the assets originally used to fund the trust; any appreciation of those assets will generally then be paid out to the beneficiaries when the GRAT expires. As useful as GRATs can be for transferring wealth and mitigating estate tax liabilities, they can come with some risks. For instance, GRATs can be less effective when they hold depreciating assets.
- Intentionally Defective Grantor Trusts (IDGTs): As a type of grantor trust, IDGTs can isolate certain assets from an estate while the grantor still pays the taxes for any income earned from those assets, despite not technically “owning” the assets in question. That loophole is why IDGTs are “defective.” With this structure, the objective is usually to transfer certain assets to children and grandchildren at some “locked-in” value. While IDGTs can be funded by gifts, grantors can also “sell” assets to these trusts. Either way, the assets held by IDGTs won’t be included in grantors’ estates, and beneficiaries will inherit those assets when grantors pass away.
- Spousal Lifetime Access Trusts (SLATs): Another irrevocable trust, SLATs offer a way for spouses to remove certain assets from their shared estates while transferring those assets to their marital partners. Either or both spouses can set up SLATs. If they do, they can name beneficiaries, like children or parents, along with their husband or wife. With SLATs, it’s essential to know that special care must be taken in setting up these trusts to avoid triggering the reciprocal trust doctrine. Additionally, funding these trusts may invoke gift taxes or estate tax exclusions, depending on how SLATs are structured and funded. If estate tax exclusions come into play with SLATs, grantors who set these trusts up before 2026 may be able to take advantage of the higher estate tax exclusions currently available.
- Family Limited Partnerships (FLPs): Family members can transfer real estate and other assets via FLPs, using general partnerships or limited partnerships. FLPs are often used to manage family business interests and investments, providing a way for members to contribute assets (to fund a project or support an investment, for instance) and collect dividends (according to the terms of the FLP). Complex and usually requiring at least two members, FLPs can be another effective way to mitigate estate tax liabilities.
Those are not the only strategies for getting ahead of the sunsetting estate tax exemption in 2026, and they may not be enough to achieve your goals, depending on your situation and needs.
To see what your best options are, contact an Austin estate planning attorney at the Law Office of Todd A. Wilson, also known as TAW Law TX.
Find Out More About the 2026 Estate Tax Changes & What You Should Do Next
Whether you have an estate plan or not, there’s no better time than now to take a look at your estate and what you can do to shift gears and prepare for the big changes ahead.
An experienced Austin estate planning lawyer at TAW Law TX is here for you, ready to help.
The truth is that life, your estate, and tax laws do change over time — and it just makes sense to revisit your plans for the future and make sure they still align with all those evolving factors. Our Austin probate and estate lawyers are proud to help folks just like you navigate these changes and achieve their goals. Discover how we can help you and what your options are for getting ahead of the 2026 estate tax exemption changes in a free, no-obligation consultation. Just contact us to get more answers today.
Todd A. Wilson
Todd A. Wilson has been practicing law since 2007, with the aim of educating all strata of society and sharing crucial insights about the importance of estate planning, probate, and more.
The Law Office of Todd A. Wilson (also known as TAW Law TX) offers affordable estate planning and probate services.