Estate Planning in 2026: The World is Changing, Are You Ready?
Navigating New Tax Implications in 2026
Why 2026 is a Critical Year for Estate Planning?
Estate planning involves the preparation and arrangement of an individual's assets for distribution upon their death. This includes creating wills and trusts and making financial and medical decisions in advance. The goal is to ensure that your assets are distributed according to your wishes, minimize tax liabilities, and protect your loved ones from potential financial disputes.
Estate planning doesn’t just impact the living; it profoundly affects the survivors. By organizing and structuring your estate plan, you can avoid confusion, hefty tax implications, and the potential for family disputes.
As we approach 2026, significant changes in estate planning legislation are looming. These changes can have profound impacts on high-net-worth families. The expiration of the Tax Cuts and Jobs Act (TCJA) and the enactment of the American Housing and Economic Mobility Act make understanding and preparing for these shifts crucial.
What is the TCJA?
The Tax Cuts and Jobs Act (TCJA), passed in 2017, introduced significant changes to tax legislation, including provisions that greatly benefit high-net-worth individuals concerning estate and gift taxes. However, these provisions are set to expire on January 1, 2026, reverting to pre-TCJA conditions unless Congress enacts new legislation.
Key Changes Impacting Estate Planning
● Gift Tax Exemption: The gift tax exemption will drop dramatically from $13 million to $7 million, which will significantly impact estate planning strategies.
● Estate Tax Exemption: The estate tax exemption amount will revert to $3.5 million per individual under the American Housing and Economic Mobility Act. This reduction means significantly higher tax obligations on estates that exceed this threshold.
Impact on Trusts and Estate Planning
One of the most common and significant mistakes in creating an estate plan is setting up a trust but failing to fund it properly. Trusts play a critical role in estate planning by providing a structured way to manage and distribute assets. However, without appropriate funding, a trust cannot fulfill its intended purpose, leading to potential complications and inefficiencies.
Estate planning doesn’t just impact the living; it profoundly affects the survivors. It's crucial to organize and clearly structure your estate plan to ensure compliance, avoid confusion, and prevent potential family disputes. Making things easy for your beneficiaries and children is key to ensuring your legacy is preserved and relationships remain intact.
Let's proactively address these forthcoming legislative changes to secure your family's future.
Understanding the Impact of Legislative Changes
Legislative Changes and Their Implications
As 2026 approaches, several legislative changes are set to dramatically impact estate planning for high-net-worth families. Understanding these changes is crucial for effective preparation and strategy.
Impact of Legislative Changes
The American Housing and Economic Mobility Act introduces significant modifications, particularly concerning the generation-skipping transfer tax (GST). Under the new provisions, the GST exemption is eliminated for certain transfers. This means any direct skip or taxable distribution made to a non-exempt person will have an inclusion ratio of 1. This change affects how wealth is transferred across generations and calls for immediate attention to strategic estate planning.
For instance, the elimination of the GST exemption for transfers to non-exempt persons will significantly affect generational wealth transfer strategies. Trusts that were created before January 1, 2024, will be deemed to have been created on January 1, 2024, for the purpose of exclusion determinations. This makes it essential for high-net-worth families to review and update their estate plans to align with the new legislation.
Key Provisions from the American Housing and Economic Mobility Act
● Elimination of GST Exemption: The elimination of GST exemption for certain persons is outlined in Section 405. This includes any direct skip or taxable distribution to a non-exempt person, which now requires an inclusion ratio of 1.
● Date of Trust Creation: Trusts created before January 1, 2024, will be deemed created on January 1, 2024, for exclusion determination purposes.
● Repeat Transfers: In case of multiple generation-skipping transfers of property, the date of the creation of the transferee trust will be considered the earlier date between the creation of the transferor and transferee trusts.
Tax Planning Urgency
With these impending changes, the urgency around estate planning cannot be overstated. Thousands of high-net-worth individuals are expected to rush into estate planning just before the legislation expires at the end of 2025. This rush could potentially overwhelm attorneys and other estate planning professionals, making it crucial to act promptly to ensure that your estate plan is in place.
Current legislation's expiration and the drastic reduction in exemptions mean that if you haven't contemplated a tax strategy to minimize estate tax, time is running out. The old adage holds true: if you don’t use them, you lose them. A well-formulated estate strategy can save your estate and beneficiaries from unnecessary tax burdens and complications.
Addressing these changes proactively secures your legacy and protects your beneficiaries from potential financial and emotional turmoil. By being proactive and incorporating up-to-date strategies, you ensure your wealth transfer aligns with your wishes and minimizes the impact of these legislative changes.
Strategies for Effective Estate Planning
Preparing for 2026 – The Essentials
Estate planning for 2026 and beyond requires a well-thought-out strategy, addressing key elements such as trusts,and beneficiary reviews, and ensuring all legal documentation is in place. These strategies help secure your legacy, simplify the process for your beneficiaries, and ensure compliance with IRS regulations and tax code.
Importance of Legal Documents
One of the most fundamental aspects of effective estate planning is ensuring that all necessary legal documents are in place, in accordance with current legislation. This includes wills, trusts, financial powers of attorney, and medical powers of attorney. Having these documents properly executed means that your wishes are legally enforceable and can be acted upon without delay.
Clear documentation is critical in preventing any misunderstandings or disputes among your heirs, especially when it comes to issues of inheritance. It also ensures that your assets are managed and distributed according to your explicitly stated wishes, thereby minimizing potential conflicts.
Trust Planning
Understanding Trusts: Irrevocable trusts and other types of trusts play a critical role in estate planning by providing a structured way to manage and distribute assets. Trusts can help with avoiding probate, reducing estate taxes, and protecting assets from creditors. However, the biggest mistake people make is setting up a trust but failing to fund it properly.
This is one of the biggest questions we get at Cornerstone Wealth. Whether or not you need a trust depends on your specific circumstances, including the size of your estate, your goals for asset distribution, and your privacy concerns. Trusts serve the purpose of allowing you to have greater control over how and when your assets are distributed after your death and can protect your estate from unnecessary taxes and legal battles.
Funding Your Trust: Properly funding a trust involves transferring assets into the trust so that the trust owns them. This step is crucial because even the best-drafted trust won’t achieve your estate planning goals if it is not properly funded. For high-net-worth individuals, this often includes transferring significant assets such as real estate, investment accounts, and business interests into the trust.
Beneficiary Reviews and Strategies
Reviewing and Updating Beneficiaries: Regularly reviewing and updating your beneficiaries is essential. Life circumstances change, such as marriages, divorces, births, and deaths, which may all necessitate changes to your beneficiary designations. Ensuring these are updated prevents potential disputes and ensures that your assets go to the intended heirs.
● Strategic Asset Distribution: Careful planning of asset distribution can minimize tax implications. This includes strategies such as charitable giving, philanthropic gifting, and leveraging the current gift tax exemption. For instance, philanthropic gifting not only reduces the taxable estate but also supports causes that are important to you, aligning with your values and legacy.
● Charitable Giving: Charitable giving can provide substantial tax benefits while also supporting your philanthropic interests. This can be a strategic part of estate planning, as it allows you to reduce the taxable estate while supporting causes that matter to you.
Making things easy for your beneficiaries and children is vital to avoiding future relationship conflicts. By clearly outlining your wishes and ensuring all documents are up to date, you save your loved ones from potential legal battles and emotional stress. Effective estate planning is an act of love, ensuring that your family is cared for and your legacy is preserved.
Addressing Tax Implications and Future Planning
Tax Implications and Estate Planning
As we approach the pivotal year 2026, understanding and planning for the impending tax implications and the estate planning sunset 2026 is crucial. The changes in tax laws will significantly affect estate planning strategies, particularly in terms of gift tax exemptions and generation-skipping transfer taxes.
Gift Tax Exemption Changes
The Tax Cuts and Jobs Act (TCJA) has provided a favorable gift tax exemption of $13 million for individuals. However, this exemption is set to decrease dramatically to $7 million starting January 1, 2026. This reduction will have a profound impact on estate planning, potentially doubling the tax liability for estates that do not plan appropriately.
To put it in perspective, if you have not utilized the current gift tax exemption before it reverts, your estate stands to lose significant financial advantages. This transition makes it imperative to act now and leverage the current exemptions to shield your estate from unnecessary taxation, enabling smoother wealth transfer to your heirs.
Generation-Skipping Transfer Tax
The changes brought about by the American Housing and Economic Mobility Act also include the elimination of the generation-skipping transfer (GST) tax exemption for certain transfers. Under the new rules, any direct skip or taxable distribution made to a non-exempt person will no longer enjoy GST tax exemption, leading to higher tax liabilities.
Considering the updated classifications, an exempt person is now defined as someone within two generations of the transferor or someone older than the trust itself. All other transfers will face a complete elimination of the GST tax benefits, making strategic planning more critical than ever.
Understanding Transfers and Trusts: Trusts created before January 1, 2024, will be deemed created on that date for exclusion determination purposes. Such provisions require high-net-worth families to review their estate plans meticulously. A proper understanding of supplementary transfers or multiple transfer events and their timing is necessary to avoid unexpected tax burdens.
The Value of Charitable Giving in Estate Planning
Philanthropic Gifting and Charitable Planning:Charitable giving offers dual benefits: it aligns with your philanthropic interests and provides critical tax advantages by reducing the taxable portion of your estate. This can include setting up donor-advised funds, establishing charitable trusts, or making direct donations, which can be strategically planned to maximize tax benefits while supporting causes close to your heart.
Liquid Asset Transfer and Document Review: Minimizing liquid asset exposure often involves strategic gifting of liquid assets during your lifetime, benefiting both donor and recipient by reducing the taxable estate. Regular review and updating of all legal documents associated with your estate plan ensure compliance with current laws and personal wishes.
Effective estate planning requires foresight and strategic action, such as establishing an irrevocable trust and considering the implications of the current tax code and the Tax Cuts and Jobs Act, to mitigate the impending tax changes in 2026. Utilizing the gift tax exemption before it decreases and understanding the impact of GST tax changes are crucial steps. Engaging in charitable planning and ensuring thorough documentation review are pivotal strategies for minimizing tax burdens and preserving your legacy.
Final Steps and Recommendations
Taking Action: Estate Planning in 2025 and Beyond
As the legislative landscape rapidly evolves, taking immediate action to review and update your estate plan is imperative. Finalizing strategies now will ensure your estateis well-prepared for the changes set to take effect in 2026. Here’s how to proceed effectively.
The Importance of Immediate Action
Avoiding Procrastination:
Estate planning is often easy to procrastinate until you’ve experienced the repercussions of not having a structured plan in place. With the imminent legislative changes, timely action can save your estate from significant tax implications and potential legal disputes. Delaying your planning can lead to rushed decisions, potential oversights, and missed opportunities to leverage current tax exemptions and benefits.
Securing Your Legacy:
Comprehensive estate planning secures your legacy and ensures your assets are managed and distributed per your wishes, effectively managing inheritance for your beneficiaries. Immediate action ensures that your plans are not only legally valid but optimally structured to navigate the upcoming tax changes.
Consulting with Professionals
The Need for Expertise:
Estate planning can be complex, especially with the upcoming changes in tax law. Consulting with knowledgeable estate planning professionals, such as attorneys and financial advisors specializing in high-net-worth estates, is crucial. These experts can help you navigate the intricacies of trusts, tax exemptions, charitable planning, and all necessary legal documents.
Tailored Advice:
Each individual’s estate planning needs are unique. Professionals can offer tailored advice that aligns with your specific circumstances, ensuring that your plan addresses all potential issues and maximizes benefits for your estate and beneficiaries. Whether it's deciding the type of trust, understanding the nuances of charitable gifting, or strategizing for tax minimization, professional advice is invaluable.
Ready Your Estate Plan Today
Ensuring that your estate plan is robust and ready for future changes is an act of foresight and care for your beneficiaries. At Cornerstone Wealth Group, we are dedicated to helping you navigate these changes with confidence. We invite you to schedule a consultation to review your current estate plan, address any gaps, and formulate a strategy that aligns with the impending legislative changes.
For more detailed information and to schedule your consultation, visit our Estate Planning page.
Creating a structured and well-documented estate plan is crucial in making things easier for your beneficiaries and children.
By proactively addressing potential issues and incorporating strategic planning, you preserve your legacy and protect your loved ones from financial and emotional turmoil. Effective estate planning ensures that your wealth transfer is seamless and your wishes are faithfully executed, safeguarding relationships from the strains that unmanaged estate transitions can cause.
“Everything takes time, if you don’t start planning by Jan, 2025 you’re already too late.”
— Joe Sweeney, Cornerstone Director of Business Solutions
The world of estate planning is changing rapidly.
2026 will bring significant legislative shifts impacting high-net-worth estates. By understanding these changes and taking immediate action, you can secure your legacy, reduce tax burdens, and ensure peace of mind for your beneficiaries.
This is for informational purposes only and does not serve as personal advice. Please speak to a qualified estate planner about your unique circumstances. . Links within this blog are not associated to Cornerstone Wealth and are subject to change. Hyperlinks will take you to a third-party website whose content Cornerstone Wealth does not control. Investment advisory services offered through Cornerstone Wealth Group, LLC dba Cornerstone Wealth, an SEC registered investment adviser.
