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June 18, 2024

As we look ahead to 2026, the landscape of estate taxes is poised for significant changes that could impact your financial planning. The Tax Cuts and Jobs Act (TCJA) of 2017 brought substantial changes to the federal estate tax exemption, raising it to $13.61 million in 2024. This increased exemption allows individuals to transfer a larger amount of wealth to their heirs without incurring estate tax liabilities. However, this generous exemption is set to sunset at the end of 2025, potentially bringing major implications for estate planning.

The Congressional Budget Office projects that the new exemption amount will decrease to $6.4 million in 2026, adjusting for inflation. This reduction means that what is exempt from estate tax today might not be exempt tomorrow. As such, it's crucial to seek guidance from a professional, like an estate planning attorney in Reno, to navigate these impending changes effectively.

The Evolution of the Estate Tax Exemption

The federal estate tax has a long history, first introduced in 1916 to generate government revenue. Over the years, the exemption limits and rates have seen numerous adjustments. Notably, the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) progressively increased the estate tax exemption and lowered the tax rates until the exemption hit zero in 2010. However, without further legislative action, the exemption reverted to the 2001 levels for deaths occurring in 2011, setting the exemption at $5 million.

The TCJA of 2017 was a game-changer, doubling the estate tax exemption from $5.49 million to nearly $11 million, aiming to stimulate economic growth and job creation. This adjustment continues to account for inflation, offering an unprecedented opportunity for individuals to transfer significant wealth free from federal estate taxes.

The Implications of the TCJA's Sunset Provision

Embedded within the TCJA is a sunset provision that limits the duration of the higher estate tax exemption. Without legislative intervention, this exemption will be cut in half to $5 million, adjusted for inflation, by 2026. This potential reduction could create an estate planning crisis for individuals with substantial estates as the December 31, 2025, deadline approaches. According to the Congressional Budget Office, the exemption is expected to drop to $6.4 million in 2026.

Preparing for Potential Estate Tax Changes

As we approach 2025, it is vital to reassess your estate planning goals and strategies in light of potential changes to the federal estate tax exemption. Collaborating with trusted advisors, including an estate planning attorney in Reno, is essential to review and potentially adjust your estate plan, investments, and property. This proactive approach ensures that your financial legacy remains protected despite upcoming legislative changes.

An estate planning attorney in Reno can help you navigate these complexities, providing insights and strategies tailored to your specific situation. Whether it involves lifetime gifting, reassessing property values, or developing comprehensive succession plans, professional guidance is crucial to minimize your estate tax liability and safeguard your wealth for future generations.

Case Study: Should You Be Concerned About Estate Tax Issues?


As the estate tax exemption is set to change in 2026, individuals with significant wealth need to act now to address potential future tax burdens. The Tax Cuts and Jobs Act (TCJA) currently provides a high estate tax exemption, but this is scheduled to decrease in 2026. Preparing for this reduction is essential, and working with an estate planning attorney in Reno can help you develop and implement effective strategies to minimize estate tax liability.

The Andersons' Estate Planning Journey

Consider the Andersons, a wealthy family living in a high-cost state. Robert Anderson, a successful entrepreneur, and his wife, Sarah, an accomplished artist, have built a substantial estate worth $16 million. Their assets include business holdings, valuable artwork, life insurance, real estate, and other investments. Their two adult children, James and Emily, are actively involved in the family business

Unique Estate Tax Challenges

With the current federal estate tax exemption set at $13.61 million per individual, adjusted for inflation, the Andersons have felt secure in their estate planning. This exemption is projected to increase to $13.61 million by 2024. The Andersons have taken initial steps to secure their financial legacy, such as creating a trust, considering a family limited partnership, and exploring gifting strategies. However, if the exemption drops to $6.4 million adjusted for inflation in 2026, they may face significant estate tax challenges. An estate planning attorney in Reno can provide essential guidance in navigating these complexities.

Business Succession Planning

The family business forms a significant part of the Andersons' estate. To ensure its continued viability, they need a comprehensive business valuation and succession plan. This planning will help minimize the estate tax burden and facilitate a smooth ownership transition to their children, James and Emily. Consulting an estate planning attorney in Reno is crucial for developing a robust succession plan.

Assessing Property and Investments

Given the potential changes in estate tax laws, the Andersons must reassess their financial accounts, retirement investments, life insurance policies, real estate, and artwork. Accurate valuations are essential to determine how these assets will impact their estate tax calculation. This reassessment will help them understand the potential tax liability they face if the exemption amount is reduced.

Accelerated Lifetime Gifting

To reduce their taxable estate while the higher exemption is in place, the Andersons might consider accelerated lifetime gifting strategies. The IRS has clarified that gifts made under the increased exclusion from 2018 to 2025 will not be subject to additional taxes if the exclusion amount drops after 2025. Gifting up to $13.61 million in 2024 can be done without tax liability, but exceeding $6.4 million in 2026 may have significant consequences. An estate planning attorney in Reno can ensure these gifts are managed correctly.

Life Insurance Strategies

To provide for their loved ones, the Andersons should consider using life insurance. Establishing an irrevocable life insurance trust to own the policy can remove its value from their estate, protecting the death benefit for their beneficiaries. Consulting an estate planning attorney in Reno is vital to ensure this strategy is implemented correctly.

Marital Deduction and Advanced Tax Planning

High-net-worth families like the Andersons may benefit from advanced tax planning techniques, such as an AB trust. This approach optimizes each spouse’s estate tax exemption, potentially minimizing their liability. Upon the first spouse's death, an amount equal to the current exemption is placed in a trust, and the remainder goes to a second trust for the surviving spouse, qualifying for the unlimited marital deduction.

Portability of the Deceased Spouse's Unused Exemption

Spouses can transfer an unlimited amount to each other without estate or gift tax concerns. However, filing an estate tax return at the first spouse's death can document the unused exemption, allowing the surviving spouse to add it to their own exemption. This portability can be crucial for estate planning, and an estate planning attorney in Reno can guide you through this process.

Charitable Giving

If the Andersons are inclined towards philanthropy, establishing a charitable remainder trust could be an excellent option. Though setting up such a trust can be complex, it offers significant tax benefits and aligns with their charitable goals.

Professional Guidance for Estate Planning

If your situation resembles the Andersons', seeking expert advice is essential to address estate tax concerns. Understanding how the potential reduction in the estate tax exemption will impact your estate is crucial. Consulting an estate planning attorney in Reno can provide the specialized expertise needed to navigate these challenges, protect your assets, and ensure a smooth transition of wealth.

Monitoring Asset Values

As we move into 2025, reviewing your estate planning goals and strategies is vital. The TCJA's estate tax exemption, currently set at $13.61 million adjusted for inflation, may revert to pre-2017 levels by the end of 2025. Depending on your assets, including business interests, life insurance, and real estate, you may need to reassess their values to avoid exceeding the lower exemption limit.

Your Business

Developing a comprehensive business succession plan is critical, particularly if you want your business to continue after you retire or pass away. Strategies like gifting shares to the next generation or creating a family limited partnership can help minimize tax liability. An estate planning attorney in Reno can assist in structuring these plans effectively.

Life Insurance Policies

Life insurance can play a crucial role in your estate plan. Reviewing your policies with the federal estate tax exemption in mind is essential. Transferring policy ownership to an irrevocable life insurance trust can protect the death benefit and reduce estate tax liability.

Real Estate Planning

Real estate can present unique challenges in estate planning. Reassessing property values and using trusts, like qualified personal residence trusts (QPRTs), can help transfer real estate to heirs while minimizing estate tax exposure. Creating entities to own real estate may offer additional asset protection.

Stay Updated with Professional Help

The estate tax landscape is evolving, making it crucial to keep your estate plan current. Collaborating with trusted financial and tax advisors ensures your plan is customized to your unique circumstances. Consulting an estate planning attorney in Reno can provide the expertise needed to navigate these complex challenges and protect your financial legacy.

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