As we enter a new year, it's the perfect time to revisit your estate planning strategies to ensure they align with current laws and your long-term goals. With potential tax and legal changes on the horizon, staying informed and proactive will help you make the most of available opportunities and avoid unexpected challenges. Here are some key considerations to guide your planning:

Make the Most of the Current Increased Estate Tax Exemption

Consider Gifting Strategies

The federal estate, gift, and generation-skipping transfer (GST) tax exemptions are at an all-time high of $13.99 million per individual in 2025. However, these exemptions are scheduled to revert to approximately $7 million on January 1, 2026, unless Congress intervenes. To maximize tax benefits, consider making substantial gifts before the exemption decreases.

Utilizing your lifetime gift exemption allows you to transfer significant assets to heirs without incurring federal gift taxes. Given the impending reduction in the exemption amount, making gifts in 2025 can lock in the current higher threshold, potentially reducing your taxable estate. For instance, you can give up to $19,000 per recipient annually without affecting your lifetime exemption. Married couples can combine this for a total of $38,000 per recipient each year.

Making lifetime gifts can be a smart way to take advantage of the current high federal exclusion amount. It's often cheaper than passing wealth at death since gift taxes are paid upfront, avoiding extra estate taxes later. Plus, any future growth on gifted assets is removed from your taxable estate.

However, gifting isn't always the best move. Assets given during your lifetime won't receive a step-up in basis, meaning heirs may owe capital gains tax if they sell them for a profit.

The best strategy depends on your total wealth, the value of your assets, and your tax situation. If your estate is well above the exemption limit, gifting high-basis assets now can reduce future tax burdens. But if your assets are near or below the exemption amount, holding onto them until death may be better to maximize tax savings. 

Utilizing Trusts

Establishing trusts can provide structured asset management, protect assets from creditors, and offer tax advantages. For example, irrevocable trusts remove assets from your taxable estate, potentially reducing estate taxes.

Certain types of trusts can be particularly useful given the anticipated reduction in the estate tax exemption in 2026:

• Grantor Retained Annuity Trusts (GRATs) – A GRAT allows you to transfer assets to beneficiaries at a reduced gift tax cost while retaining annuity payments for a fixed period. If the assets appreciate beyond a set rate, the excess growth passes to heirs tax-free.
• Qualified Personal Residence Trusts (QPRTs) – A QPRT enables you to transfer your home to beneficiaries at a lower tax value while allowing you to continue living in the residence for a set term. This strategy can be beneficial if you anticipate home appreciation.
• Intentionally Defective Grantor Trusts (IDGTs) – An IDGT allows assets to grow outside your taxable estate while you, as the grantor, continue to pay income taxes on the trust's earnings. This can help shift wealth to heirs tax-efficiently without using your lifetime gift exemption.
• Spousal Lifetime Access Trusts (SLATs) – A SLAT allows one spouse to transfer assets into an irrevocable trust for the benefit of the other spouse, keeping the assets outside of their taxable estate while still maintaining indirect access to them. SLATs can be an effective strategy for locking in the current high estate tax exemption before it decreases. For more details on SLATs, check out our in-depth article here. 

These trusts can be valuable tools for reducing estate tax liability and ensuring a smooth transfer of wealth. 

Plan for Retirement Account Distributions

The SECURE Act of 2019 altered distribution rules for inherited retirement accounts. Most non-spouse beneficiaries are now required to withdraw the entire balance within 10 years, which can have significant tax implications. Strategize your retirement account distributions to minimize tax burdens for your heirs.

Consider Life Insurance as an Estate Planning Tool

Life insurance can be a useful tool for managing estate taxes and providing financial security for your heirs. The value of a life insurance policy grows tax-deferred, and payouts upon death are generally tax-free. Some policies can also serve as tax-advantaged retirement planning tools. If you have loans against your policy, paying them off may maximize your tax-free payout, but be sure to weigh the costs and benefits with a financial advisor.

Using Intra-Family Loans for Wealth Transfer

Even though interest rates have risen, intra-family loans remain a valuable estate planning tool. Strategies include:

• Funding life insurance premiums – An irrevocable trust can buy a life insurance policy on a family member's life, with premiums paid through family loans.
• Creating family trusts – Older family members can lend money to a trust for younger generations, allowing assets to grow outside their taxable estate.
• Forgiving existing loans – If you've previously loaned money to family members, forgiving some or all of the loan can count as a gift, using your annual or lifetime gift exemption.

Sell Assets to a Family Trust

A Grantor Trust set up by a relative or friend can be used to buy assets from you at fair market value in exchange for a secured loan. This strategy can:

• Shift future asset appreciation out of your taxable estate.
• Allow you to maintain some control over the trust.
• Provide creditor protection for your heirs.
• Potentially qualify for a tax step-up in basis, reducing capital gains tax.

This is a complex strategy that should be carefully structured with professional guidance.

Consider Disclaimer Planning

Did you know you don't have to inherit an asset if you don't want to? If you inherit assets but don't need/want them, you may be able to disclaim (refuse) them, allowing them to pass to the next beneficiary without counting as a taxable gift. This can help reduce estate taxes and maximize the use of the Generation-Skipping Transfer (GST) exemption. However, disclaimer planning requires careful timing and legal compliance.

Create Charitable Giving Strategies

There are several ways to combine philanthropy with tax benefits:

• Charitable Remainder Annuity Trust (CRAT): Best in high-interest rate environments, this trust provides you with income for life while the remainder goes to charity. You may also receive an immediate tax deduction.
• Charitable Lead Annuity Trust (CLAT): More effective when interest rates are low, this trust gives annual payments to a charity for a set time, with remaining assets eventually passing to your heirs tax-free.
• IRA Charitable Rollover: If you're 70½ or older, you can donate up to $100,000 (adjusted for inflation) from your IRA to charity without counting it as taxable income.

These strategies can reduce taxes while supporting causes you care about.

Review and Update Estate Planning Documents

Regularly updating your will, trusts, and beneficiary designations ensures they reflect your current wishes and comply with evolving laws. This is particularly important after life events such as marriage, divorce, births, or significant financial changes.

Stay Informed on Legislative Developments

Tax laws are subject to change, especially with potential new legislation on the horizon. Staying informed about proposed changes allows you to adjust your estate plan proactively. 

Consult with Estate Planning Professionals

These are just a few of the considerations and strategies available. Given the complexity and potential changes in estate laws, working with an experienced estate planning firm like Sundvick Legacy Center and financial advisors is essential. They can provide personalized guidance to ensure your estate plan is effective, compliant with current regulations, and adaptable to future law changes. 

By addressing these considerations and consulting with trusted professionals, you can create a robust estate plan that preserves your wealth and honors your intentions for future generations.

^{Source:
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