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Planning for estate tax changes coming in 2026

On Behalf of | Apr 26, 2023 | Estate Planning |

Connecticut residents should be aware that several changes to estate tax laws effective in 2026 may affect how they structure their plans. This particularly applies to those who have significant assets.

Estate tax exemptions will decrease significantly

Current federal law provides a significant lifetime estate tax exemption of $12.92 million per person and $25.84 million for married couples. Those amounts will decrease to $5 million per person and $10 million for married couples beginning in 2026. However, those figures are still being determined, as the U.S. government is expected to adjust those figures for inflation. Current estimates have the figures at $6.08 million and $12.16 million, respectively.

While many individuals and couples won’t need to worry about the decrease, high-worth people will need to adjust their estate planning strategies. Anyone with estates potentially exceeding those amounts should begin taking steps to avoid the 40% federal estate tax amount that their heirs will have to pay.

While considering your options, also note that the lifetime gift tax exemption will also decrease to the same amount as the federal estate exemption. Gift taxes don’t usually apply when you give assets to your spouse, charitable organizations, healthcare providers to pay someone else’s bills and educational organizations for someone else’s tuition.

Estate planning strategies to consider

One of the goals of estate planning is to protect your legacy and assets for your beneficiaries. Various tools to safeguard assets are available that can exempt your assets in different ways. Tools include multiple trusts, including the Domestic Asset Protection Trust (DAPT), Special Power of Appointment Trust (SPAT), and Spousal Lifetime Access Trust (SPAT). Note that some trusts may not work for your specific situation.

Estate plans require review every few years. Now marks an excellent time to see if you have the proper tools to protect your assets. Simultaneously, you should also determine whether beneficiaries on all accounts are updated to reflect your current wishes and needs.