Tax Tips
The Estate Tax Sunset 2026: How to Lock In the $27 Million Exemption Before It Vanishes
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Result: Acting before the sunset saved $5.2 Million in taxes.
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The Estate Tax Sunset 2026: How to Lock In the $27 Million Exemption Before It Vanishes
CORE INSIGHTS
- The Cliff: On Jan 1, 2026, the federal estate tax exemption will be cut in half (from ~$13.99M to ~$7M). Assets above this limit face a 40% Tax.
- No Clawback: The IRS confirmed that gifts made before 2026 using the high exemption are safe. You will not be taxed retroactively. It is a “Use It or Lose It” deal.
- The SLAT Solution: A Spousal Lifetime Access Trust (SLAT) allows you to gift assets out of your estate (locking in the exemption) while your spouse retains access to the funds.
We are in a “Golden Age” of estate planning, but it ends in 2026. For families with a net worth over $14 million, inaction is a choice to pay millions in voluntary taxes. The strategy is simple: Move it out now, or pay 40% later.
What-If Scenario: The $30 Million Estate (Couple)
| Scenario | Exemption Used | Tax Bill (40%) |
|---|---|---|
| Do Nothing (2026) | ~$14M (Halved) | $6.4 Million |
| Use SLATs (2025) | ~$27M (Current) | $1.2 Million |
Visualizing the Exemption Cliff
*Figure 1: The Vanishing Shield. The Green area (Bonus Exemption) disappears in 2026.*
Strategic Action Steps
1
Calculate “Core Capital”
Determine how much you absolutely need to live. Only gift “Surplus Capital” into irrevocable trusts because you cannot easily take it back.
Determine how much you absolutely need to live. Only gift “Surplus Capital” into irrevocable trusts because you cannot easily take it back.
2
Establish a SLAT
One spouse creates a trust for the other. This moves assets out of the estate but allows the beneficiary spouse to receive distributions if needed.
One spouse creates a trust for the other. This moves assets out of the estate but allows the beneficiary spouse to receive distributions if needed.
3
Avoid Reciprocal Trusts
Do not create identical SLATs for each other simultaneously. The IRS will unwind them. Make them different in time, assets, and terms.
Do not create identical SLATs for each other simultaneously. The IRS will unwind them. Make them different in time, assets, and terms.
The Bottom Line: Who Should Choose What?
- Net Worth > $15M (Couple): Red Alert. Implementing a SLAT before 2026 is likely your highest ROI activity.
- Net Worth < $10M: You are likely safe. Focus on Annual Gifting (#153) and Revocable Trusts (#140).
Frequently Asked Questions
What happens on January 1, 2026?
The TCJA expires. The Estate Tax Exemption (~$13.99M) reverts to 2017 levels (~$7M), exposing millions more to the 40% tax.
What is the ‘Anti-Clawback’ Rule?
The IRS confirmed that gifts made before 2026 using the higher exemption will NOT be taxed later. You lock in the benefit permanently.
What is a SLAT?
A Spousal Lifetime Access Trust. It moves assets out of your estate (tax-free) but lets your spouse access them, solving the “fear of giving it all away.”
Disclaimer: This content is for informational purposes only. Estate tax laws are complex. Consult an estate attorney.