Basic Estate Planning Terms and Major Changes in 2026

Understanding common estate planning terms is crucial for effective financial management. Here's a guide to some key terms:

• Probate Fees: Probate is the court-supervised distribution of assets. Without estate planning documents, or with only a will, courts may charge your estate a probate fee, typically 1-4% of the property's value, varying by state law.

• Transfer Taxes: The federal government imposes three types of transfer taxes: gift tax, estate tax, and generation-skipping transfer tax (GST tax). These may apply to transfers during life or at death. Note that many states have their own taxes in these categories.

• Marital Deduction: Transfers to a U.S. citizen spouse during life or at death are not taxable. The unlimited marital deduction means no gift or estate taxes on these transfers, although they may be taxable in the spouse's estate upon their death.

• Lifetime Gift Tax Exemption: For 2024, the exemption is $12,920,000 per person, allowing this amount to be gifted without federal gift tax implications. This is over the annual gift tax exclusion amount and is reduced once utilized, affecting the estate tax exemption at death.

• Annual Gift Tax Exclusion: In 2024, you can give up to $16,000 per recipient annually without gift tax implications. This is in addition to lifetime gift tax exemption and doesn't reduce it.

• Portability: Since 2011, married couples can use a deceased spouse's unused estate tax exemption. The executor must elect this on the deceased spouse's estate tax return.

• Estate Tax Exemption: In 2024, estates exceeding $12,920,000 are subject to federal estate tax, with a 40% maximum rate. For married couples, this is usually relevant upon the second spouse's passing.

• GST Tax Exemption: For 2024, the GST tax exemption matches the estate tax exemption at $12,920,000. This applies to transfers to individuals two generations younger, like grandchildren.

2026 Changes: In 2026, federal estate, gift, and GST tax exemption amounts are scheduled to revert to $5,000,000 per person (adjusted for inflation from 2011). This significant reduction from the 2024 exemption amounts ($12,920,000) presents a crucial planning opportunity.

Impact if You Do Not Act Now: If you do not utilize the higher exemption amounts available until the end of 2025, you may miss a strategic opportunity to minimize future tax liabilities. By acting now, you can leverage the current higher exemption limits to transfer a larger portion of your wealth tax-free to your beneficiaries. Post-2026, with the exemption amounts nearly halved, a greater portion of your estate could be subject to federal taxes, potentially reducing the amount inheritable by your beneficiaries.

This change will particularly affect individuals with estates currently valued close to or above the $5,000,000 mark. If you are in this category and do not take advantage of the current higher exemptions, your estate may face higher estate and gift taxes, leading to a significant financial impact on your estate planning goals.

To fully understand how these changes might affect your specific situation and to explore strategies to optimize your estate plan, it's advisable to consult with a qualified estate planning professional (your attorney and accountant). I am not an attorney or accountant. I work with your attorney, accountant and financial planner regarding these matters and I provide insurance guidance. Feel free to contact me for personalized guidance and to ensure that your estate plan aligns with these upcoming changes.

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