The current federal lifetime gift and estate tax exemption amount of $13.61 million per person is scheduled to revert to its previous $5 million threshold in 2026 (adjusted for inflation to about $7 million).
Under current law, if someone’s estate is valued at $10 million at time of death and no taxable gifts were made during lifetime, there would be no federal estate tax owed since the estate falls below the $13.61 million exemption. However, this same person would likely owe taxes on about $3 million of the $10 million estate if the current exemption reduced in 2026 as expected, with the $3 million taxed at 40%.
Depending on your goals and current financial situation, strategic planning before the exemption reduction can help take advantage of the current higher exemption level. For example, large gifts (in excess of $7 million) can be made to make use of the current exemption before it is reduced and the opportunity is lost. These gifts can be made in trust for the benefit of a spouse and/or children, which can also offer a number of other planning benefits, such as asset protection, management for young or disabled beneficiaries, and generation-skipping transfer tax planning.
