The 2026 Estate Tax Exemption Sunset: What Just Happened and What You Can Still Do

Who Needs to Pay Attention 

This change may affect you if: 

• Your net worth exceeds $7.4 million ($14.8 million for couples) 
• You own a business or rental properties that have appreciated 
• You live in Maryland or another state with its own estate tax 
• Your retirement accounts and home equity together exceed $5 million 

When calculating net worth, include everything: home equity, 401(k)s, IRAs, taxable investment accounts, business interests, real estate, and life insurance death benefits. Most people are worth more than they think. 

If you established trusts or made large gifts before December 31, 2025, those transfers are protected. The IRS confirmed it won't claw back gifts made under the higher exemption. 

If you didn't act by the deadline, you're working with the lower exemption starting now. 

Four Strategies You Can Still Use 

Annual Gifts of $19,000 Per Person 

You can give up to $19,000 per recipient in 2026 without filing paperwork or using your lifetime exemption, according to IRS gift tax rules. 

Example: 

A married couple with three adult children can each give $19,000 to each child annually. That's $114,000 removed from their estate each year. Over ten years, they transfer $1.14 million with no gift tax returns and no reduction to their lifetime exemption. 

Add six grandchildren to the picture, and annual gifts could total $342,000, or $3.42 million over ten years. 

This is the simplest wealth transfer strategy available. No attorneys, no trusts, just direct transfers to family members. 

Spousal Lifetime Access Trusts 

A SLAT removes assets from your estate while keeping them available to your spouse. You transfer money or property to an irrevocable trust. Your spouse can take distributions if needed. When your spouse dies, remaining assets pass to your children outside of either estate. 

How this works: 

You transfer $4 million to a SLAT. This uses part of your $7.4 million lifetime exemption. The $4 million plus all future growth stays out of your taxable estate forever. Your spouse has access for living expenses or emergencies. 

The trust needs careful drafting. If both spouses create similar trusts at the same time, the IRS may apply the reciprocal trust doctrine and pull everything back into your estates. Work with an experienced estate planning attorney. 

Grantor Retained Annuity Trusts 

A GRAT transfers appreciating assets to your heirs while minimizing gift taxes. You move assets into a trust for a set term (usually two to four years). The trust pays you back the original value plus an IRS-assumed interest rate. Any growth above that rate goes to your beneficiaries tax-free. 

Example: 

Transfer $2 million in concentrated stock to a three-year GRAT. The IRS assumes 5.4% growth. You receive payments totaling about $2.34 million over three years. If the stock grows 15% annually, the excess growth (roughly $300,000) passes to your children without using any of your gift tax exemption. 

According to Fidelity, GRATs work best with assets expected to significantly outperform the IRS rate. The risk is that if assets don't appreciate enough, nothing passes to beneficiaries and you've accomplished nothing beyond paperwork.

Life Insurance Trusts 

Life insurance death benefits are included in your taxable estate if you own the policy. A $3 million policy you own personally adds $3 million to your estate tax calculation. 

An irrevocable life insurance trust (ILIT) owns the policy instead. The death benefit stays outside your taxable estate. You must survive three years after transferring an existing policy for this to work, according to IRS regulations. 

For new coverage, have the trust own the policy from day one to avoid the three-year rule. 

Important Trade-Offs 

Estate Tax vs. Capital Gains Tax 

Assets you gift during life carry over your cost basis. Assets your heirs inherit get a step-up in basis to the value at your death. 

The math for a hypothetical scenario: 

You bought stock for $1 million that's now worth $4 million. If you gift it to your daughter, she inherits your $1 million basis. When she sells, she could owe approximately $714,000 in capital gains tax on the $3 million gain (23.8% federal rate). 

If you hold the stock until death, she inherits it at a $4 million basis and owes no capital gains tax. 

For families with highly appreciated assets, gifting might save estate tax but trigger massive capital gains bills. The right choice depends on your specific numbers. 

Losing Control 

Irrevocable means irrevocable. Once you transfer $3 million to a trust or gift it to your children, you can't change your mind. If you face unexpected medical costs, market losses, or changed circumstances, those assets are gone. 

Be realistic about how much you can afford to give away permanently. 

State Estate Taxes 

Maryland's $5 million exemption is far below the federal threshold. If you're a Maryland resident with a $6 million estate, you won't owe federal estate tax but you could owe Maryland estate tax on the amount above $5 million. 

Other states with their own estate taxes include Connecticut, Illinois, Massachusetts, Minnesota, New York, Oregon, and Washington, according to the Tax Foundation. Exemption amounts range from $1 million to $13.61 million depending on the state. 

State estate tax planning may be necessary even if you're comfortably below federal thresholds. 

If You're Just Learning About This 

Many people didn't realize the exemption was temporary or didn't understand how it might affect them. Here's where you might stand now: 

Your estate is below $7.4 million: 

You probably don't need complex strategies. Update your will, confirm beneficiary designations are current, and consider annual gifts to children or grandchildren. 

Your estate is between $7.4 million and $15 million: 

You have options. Annual gifts, a SLAT, or strategic use of your remaining exemption could significantly reduce future estate tax. Run projections with your advisor to see what strategies make sense. 

Your estate exceeds $15 million: 

You're likely facing substantial estate tax. Aggressive planning won't eliminate the tax, but it could reduce it by 30% to 50%. Even saving $500,000 or $1 million matters to your heirs. 

You were planning to act but ran out of time: 

Some families intended to establish trusts in December 2025 but encountered delays with appraisals, attorney availability, or family decision-making. The higher exemption is gone, but the current $7.4 million exemption still provides planning opportunities. 

What to Do Next 

Calculate your current net worth: 

Include home equity, retirement accounts (401(k)s, IRAs, Roth IRAs), taxable investment accounts, business interests, rental properties, and life insurance death benefits. Use an online calculator or ask your financial advisor for a comprehensive statement. 

Project future growth: 

If you're 58 with a $9 million estate growing at 6% annually, you could have $22 million by age 85. Factor in business appreciation, real estate values, and portfolio growth. 

Check your beneficiary designations: 

Retirement accounts and life insurance bypass your will entirely. They pass via beneficiary designation. Confirm these match your current wishes. 

Review your estate plan documents: 

Wills and trusts drafted five or ten years ago may reference old exemption amounts or family situations that have changed. Your estate planning attorney can review and update documents to reflect current law. 

Model different scenarios: 

What's your estate tax liability if you live to 80? To 90? What if your business doubles in value? What if markets decline 30%? Understanding the range helps you decide which strategies matter most. 

Work with your financial advisor, estate planning attorney, and CPA together. Estate planning intersects with investment strategy, retirement income, business succession, and tax planning. Coordinated advice prevents unintended consequences. 

Moving Forward 

The exemption dropped. That's done. What matters now is understanding how this affects your specific situation and what you can still do about it. 

For some families, the answer is simple annual gifting and updated documents. For others, it's establishing trusts and transferring significant assets. Some may decide to accept the estate tax as the cost of maintaining control and flexibility. 

Estate planning isn't static. Laws change, assets appreciate, families evolve. Whether you acted before the deadline or you're just beginning to think about this now, regular review keeps your plan aligned with reality. 

The higher exemption is gone, but planning opportunities remain. Start by understanding where you stand and what tools might help. Then decide what makes sense for your family. 

As always, we are her to help you Champion Your Financial Life. Book a free consultation with us to discuss your planning options today. 

PlanMember Securities Corporation and Paladin Advisor Group are not associated with or endorsed by The Social Security Administration or any other government agency. This information is a general overview of certain rules related to estate and gift taxes and the ideas presented are not individualized for your particular situation. This information is based on current law which can be changed at any time. 

This content is developed from sources believed to be providing accurate information. It is not intended to provide specific tax, legal and/or investment advice or recommendations for any individual. It is suggested that you consult with your tax, legal and/or financial services professional regarding your individual situation. This material was developed and produced by Paladin Advisor Group to provide information on a topic that may be of interest.