Estate tax laws are once again at a crossroads, with potential changes that could significantly impact estate planning strategies. As 2026 approaches, practitioners and clients must prepare for multiple possible outcomes—including an extension of the bonus exemption, a reduction in the exemption amount, or even a full repeal of the estate tax. The uncertainty surrounding these changes raises critical questions: Should clients act now? Is waiting a viable strategy? What planning strategies offer the most flexibility?
Understanding the Current Landscape
The 2017 Tax Cuts and Jobs Act significantly increased the federal estate tax exemption, but these provisions are set to expire at the end of 2025, unless extended. While some proposals advocate for a permanent extension, others suggest a return to pre-2017 levels—or even the complete repeal of the estate tax. However, history has shown that even if repeal occurs, it is often temporary, with future administrations likely to reinstate the tax.
Given this uncertainty, estate planning professionals must consider a range of possibilities when advising clients. Whether the exemption is reduced, extended, or eliminated, proper structuring of trusts and wealth transfer strategies will be essential to achieving tax efficiency and asset protection.
Why Waiting Could Be Risky
Many clients may be inclined to take a “wait and see” approach, hoping for more clarity before making major estate planning decisions. However, delaying action could be a costly mistake. If the estate tax exemption is reduced without warning late in the year, there may not be enough time to execute complex planning strategies effectively. History has shown that last-minute tax law changes can leave clients scrambling to make decisions under tight deadlines, potentially leading to missed opportunities or poorly structured transactions.
Strategic Planning Considerations
To address these uncertainties, practitioners should consider:
- Using the Bonus Exemption Now: Making lifetime gifts or funding irrevocable trusts while the exemption remains high can ensure clients take advantage of the current favorable tax environment.
- Building Flexibility Into Trusts: Including disclaimer provisions, QTIP trusts, and powers of appointment can allow for adjustments based on future legislative changes.
- Leveraging Standby Trusts: Setting up trusts that can be activated later provides a ready-to-use planning tool if changes occur.
- Allocating GST Exemption Before Repeal: If the generation-skipping transfer (GST) tax is repealed alongside the estate tax, trusts funded beforehand may retain grandfathered exemption status, protecting wealth from future taxation.
- Considering State-Level Estate Taxes: Even if the federal estate tax is repealed, many states still impose their own estate taxes, requiring additional planning to mitigate potential liabilities.
The Importance of Early Planning
Estate planning is about more than just taxes—it’s about preserving wealth for future generations, protecting assets from creditors and lawsuits, and ensuring that clients’ wishes are carried out. While the political landscape remains uncertain, proactive planning allows clients to retain control over their wealth, rather than reacting to last-minute legislative changes.
As the possibility of changes in the estate tax continues to develop, advisors must be prepared to act quickly. By implementing flexible strategies now, clients can secure long-term financial security regardless of what happens in Washington.
For expert guidance on trust and estate planning strategies, contact Peak Trust Company today.