Start Planning Today for 2026

If you have not taken action as of yet, all is not lost. You still have time to take advantage of high exemption amounts while preparing for higher income tax rates in the future.  Here are a few noteworthy ideas:

• Lifetime Gifting – Those with sizable estates (greater than $25 million) should consider making substantial gifts before the change.  Those with smaller estates ($7mm – $25mm) should explore annual gifting strategies or other gifting strategies to remove assets from the balance sheet.  Annual gifting ($18,000 for 2024) may not seem like a lot when it comes to estate planning, but it can become a significant amount over time.  In certain situations, one should consult their tax advisor to properly file a gift tax return form 709.
• Intra-Family Loan Forgiveness – if you are holding promissory notes from prior estate planning transactions or loans to family members, and if your intent is to one day forgive some or all of the loan(s), then you should consider loan forgiveness before 2026 as this is considered a gifting event.
• Strategic Gifting – Rather than using some lifetime exemption equally between spouses, (up to $13.61mm) consider using the entire gift exemption of one spouse today.  This will enable the other spouse to use their lifetime exemption amount sometime after 2025.
• Roth Conversions – Accelerating income via Roth Conversions while at favorable rates can add tax diversification to your retirement income, lower future required minimum distributions, and create a tax efficient vehicle to transfer assets to the next generation.
• Alternative Minimum Tax (AMT) – Millions of tax payers are going to be surprised to owe AMT as the exemption amounts will be massively reduced after 2025.  To prepare, one will want to reduce incentive stock options, private activity bond interest, foreign tax credits, passive income and losses, and net operating loss deductions over the next two years.
• Spousal Lifetime Access Trust (SLAT) – Married couples can capture the benefits of the current gift tax exclusion while also receiving income distributions. The first spouse transfers assets to an irrevocable trust for the second spouse’s benefit, which essentially removes these assets from the grantor’s estate, avoiding estate tax.  Additionally, the second spouse in this example could establish a SLAT for the first spouse to essentially remove $27.22mm from the estate in today’s terms.  One should consult with an experienced estate planning attorney.
• Charitable Giving – Consider donating appreciated assets to charities to avoid capital gains and receive a tax deduction.  Contributions to charitable giving vehicles such as donor-advised funds, charitable gift annuities, charitable remainder trusts, or private foundations may be appropriate.
• Irrevocable Life Insurance Trusts (ILIT) – Utilization of life insurance is a great asset substitution strategy to settle one’s estate tax obligations.  Since the trust is the owner and beneficiary of the life insurance policy, it stays out of your estate and out of the estate of your loved ones.