With 2024 in full swing, here are some key estate planning considerations for the year ahead. I encourage you to take a look below and do not hesitate to reach out to our team with any questions. 

Tax Changes in 2026

As you may know, the current tax exemption amount of $13.61 million is scheduled to revert to its previous $5 million threshold in 2026 (likely adjusted for inflation to $7 million). The Biden Administration has proposed further lowering the current lifetime estate and gift tax exemption amount to $3.5 million and increasing the estate tax rate from 40 to 45%.

Under current law, if someone’s estate is valued at $10 million at time of death, there would be no federal tax owed since the estate falls below the $13.61 million exception. However, this same person would likely owe taxes on $3 million of the $10 million estate if the current exemption level is sunsetted in 2026 as expected, with the $3 million taxed at 40% (or 45% if the Biden Administration’s proposal becomes law).

Depending on your goals and current financial situation, estate tax planning strategies before the exemption reduction can help maximize the current higher exemption levels, as demonstrated in the example above. Below, I’ve outlined just a few strategies to consider before 2026: 

• Spousal Lifetime Access Trust (SLAT): This irrevocable trust allows one spouse to transfer wealth to the other while excluding future appreciation from estate taxes. The beneficiary spouse retains limited access to the assets, offering flexibility. However, the donor spouse cannot benefit directly from the assets in the SLAT and must have sufficient other assets for their needs. It’s important for the donor spouse to have enough funds outside of the SLAT to meet all of their financial obligations and needs.
• Credit Shelter Trust (CST): Upon the death of one spouse, a portion of their assets goes into this trust and is passed to beneficiaries after the surviving spouse's death. The trust shields the assets from estate taxes upon the second spouse's death. A possible downside is the potential for higher income taxes for beneficiaries, as assets in the trust receive only one step-up in basis. As a result, when beneficiaries sell these assets, they might face higher capital gains taxes due to the increased difference between the asset's original basis and its sale price. 

Especially given the potential changes, it's crucial to regularly review and update your estate planning strategies to ensure it aligns with the current laws and your personal goals.

I hope this overview was helpful for you. Foundation Wealth and Tax Advisors is at your disposal; contact us today.