Estate Tax 2026 Outlook: United States Exemption Sunset Prep

What does "private client" legal service mean in the United States?

Private client legal service in the US focuses on wealth, tax, and succession planning for individuals and families, especially those with significant assets. It covers estate planning, trusts, tax-efficient transfers, family business succession, and fiduciary administration across generations.

At higher wealth levels, "private client" work becomes more complex and crosses over with corporate, tax, and sometimes cross-border planning. Typical elements include:

• Core estate planning: wills, revocable living trusts, powers of attorney, health directives
• Tax planning: federal and state estate, gift, generation-skipping transfer (GST), and income tax
• Trust design: irrevocable trusts for spouses, descendants, charities, and asset protection
• Business and liquidity: buy-sell agreements, recapitalizations, insurance structures
• Family governance: family constitutions, education of next generation, dispute-prevention
• Administration: probate, trust funding, fiduciary compliance, and interaction with the IRS and state tax authorities

How do federal estate and gift taxes work for high-net-worth families?

The US imposes a unified federal estate and gift tax at up to 40 percent, but each person has a lifetime exemption that shelters a large amount from tax. As of 2024, that exemption is historically high and covers more than $13 million per person, but lifetime taxable gifts eat into what is available at death.

Key federal rules and concepts include:

• Unified credit / exemption: One combined exemption for taxable gifts made during life and transfers at death under Internal Revenue Code (IRC) Sections 2001 and 2505.
• Tax rate: Top marginal rate is 40 percent for federal estate and gift tax.
• Annual exclusion gifts: You can give up to a fixed amount per recipient per year (e.g., $18,000 in 2024) without using lifetime exemption.
• Portability for spouses: A surviving spouse can often use a deceased spouse's unused federal estate tax exemption if an estate tax return is filed (Form 706), even when no tax is due.
• GST tax: A separate tax and exemption apply to transfers that skip a generation (e.g., from grandparents directly to grandchildren).

What are the current exemption amounts and rates?

The exact exemption adjusts annually for inflation. The table below shows recent figures and the scheduled post-2025 change based on current law.

What happens to estate tax exemptions after 2025 and why is there a "use it or lose it" deadline?

Under the 2017 Tax Cuts and Jobs Act (TCJA), the expanded estate and gift tax exemption is scheduled to expire after December 31, 2025, cutting the exemption roughly in half in 2026. If you do not use the higher exemption via lifetime gifts before that date, you will lose the opportunity to transfer that extra amount tax free.

Key features of the TCJA "sunset" include:

• The high exemption applies only to transfers made before January 1, 2026, unless Congress changes the law.
• Absent new legislation, the exemption returns to a lower, inflation-adjusted level based on a $5 million starting point.
• The IRS has issued "anti claw-back" regulations confirming that properly structured lifetime gifts using today's larger exemption will not be taxed later if the exemption is lower when you die.

How does the "use it or lose it" principle work in practice?

The principle is that only actual taxable gifts made while the high exemption is in effect lock in that higher amount. Merely having net worth above the future exemption does not preserve the benefit if you never gift.

• If you make large taxable gifts before 2026, you can permanently remove those assets and future appreciation from your estate using today's larger exemption.
• If you wait and die after 2025 without having used the extra exemption, your estate will only have whatever lower exemption is available at that time.
• The IRS regulation (Treas. Reg. 20.2010-1(c)) protects donors from a claw-back of tax if the exemption drops after they have already used it in good faith.

How can you lock in the current exemption using lifetime gifts?

You lock in the current higher exemption by making completed lifetime gifts that use your "excess" exemption before 2026, typically into carefully structured trusts. To be effective, the gifts must be large enough and irrevocable, and must remove the assets and their future growth from your taxable estate.

Step 1: Calculate your projected exposure

1. Determine your net worth: Include real estate, investment accounts, retirement plans (for overall planning), business interests, life insurance death benefits, and valuable personal property.
2. Model future growth: Work with an advisor to estimate conservative growth over your expected lifetime.
3. Compare to future exemption: Assume a post-2025 exemption in the $6-7 million per person range (unless law changes) and identify the amount that will be exposed to a 40 percent federal estate tax.

Step 2: Decide how much exemption to "burn" now

• Many high-net-worth individuals aim to use at least the amount of exemption expected to be lost when the law reverts.
• For example, if the 2026 exemption is projected at $6.5 million and today's is $13.6 million, "excess" exemption is about $7.1 million per person, or $14.2 million per married couple.
• You might not be comfortable giving away that full amount today, so planning often combines outright gifts, trusts with flexible access (such as SLATs), and continued reserves held personally.

Step 3: Choose structures that fit your family and cash flow

Common structures for locking in exemption include:

• SLATs (Spousal Lifetime Access Trusts) - allow indirect access through a spouse.
• Dynasty or multigenerational trusts - designed to last for multiple generations and use both estate and GST exemptions.
• Intentionally defective grantor trusts (IDGTs) - remove assets from your estate while you pay the income tax, which further shrinks your taxable estate.
• Family limited partnerships or LLCs - allow you to gift discounted equity interests while retaining management and control at the entity level.

Step 4: Coordinate with valuations, documents, and tax filings

1. Obtain appraisals for real estate, closely held businesses, and other nonmarket assets to support gift tax positions.
2. Finalize trust agreements drafted by a private client or estate planning lawyer in your state of residence (or the chosen trust jurisdiction).
3. Fund the trusts by transferring title to assets and updating beneficiary designations where needed.
4. File gift tax returns (Form 709) by the applicable deadline (generally April 15 of the year after the gift) to disclose the gifts and "start the clock" on IRS audit periods.

What is a SLAT and how can it protect wealth while retaining access?

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust one spouse creates for the benefit of the other (and often descendants), using lifetime exemption to move assets out of the taxable estate while preserving indirect access to funds. SLATs have become a flagship strategy for married couples seeking to use the current high exemptions before 2026 without feeling like they are giving wealth away completely.

How does a SLAT work?

• One spouse (the grantor) transfers assets to an irrevocable trust.
• The other spouse is a primary beneficiary and can receive distributions for health, education, maintenance, and support, usually at the trustee's discretion.
• Children and future descendants can also be current or remainder beneficiaries.
• Because the trust (not the grantor) owns the assets, and the grantor has no retained control or beneficial interest, the assets are generally outside the grantor's taxable estate.

What are the main benefits of a SLAT?

• Tax benefits:
  • Uses your lifetime exemption at today's higher level.
  • Removes future appreciation from your estate.
  • Can also be structured as a grantor trust so you pay income taxes from your own assets, further reducing your taxable estate.
• Access and flexibility:
  • Distributions to your spouse can indirectly benefit you, assuming you remain married and your spouse is alive.
  • Trust terms can permit loans, distributions for specific purposes, or limited powers of appointment for future adjustment.
• Asset protection and control:
  • Properly drafted SLATs can provide creditor and divorce protection for the beneficiary spouse and descendants.
  • Trusteeship and distribution standards create discipline around use of funds.

What are key risks and traps with SLATs?

• Divorce and death risk: If the beneficiary spouse dies or the marriage ends, the grantor can lose indirect access to trust assets.
• Reciprocal trust doctrine: If each spouse creates a SLAT for the other with similar terms, the IRS may treat them as if each retained benefits, pulling assets back into their estates. Lawyers avoid this by using different timing, structure, beneficiaries, and powers.
• Funding source: In community property states, careful planning is required to avoid having both spouses treated as grantors of the same trust.
• Irrevocability: A SLAT is usually irrevocable; you cannot simply undo it if future law or family circumstances change.

When does a SLAT make the most sense?

SLATs are especially powerful when:

• You are married and likely to remain so long term.
• You have a combined net worth that will exceed the projected post-2025 exemption, even after conservative assumptions.
• You want to use significant exemption but feel uncomfortable giving assets entirely out of the family's reach.
• You are willing to accept some complexity in exchange for tax and asset protection benefits.

What other advanced strategies should private clients consider before 2026?

Beyond SLATs, high-net-worth families often combine several advanced estate planning tools to maximize the use of current exemptions and manage different asset types. The right mix depends on your goals, asset mix, and time horizon.

Popular structures and when they are used

• IDGT sales:
  • You sell appreciating assets (often business interests or investment partnerships) to an intentionally defective grantor trust in exchange for a note.
  • Future growth accrues in the trust outside your estate, while the note is repaid over time.
• Grantor Retained Annuity Trusts (GRATs):
  • Useful for shifting appreciation on volatile or rapidly growing assets with minimal use of exemption.
  • You retain an annuity; excess appreciation passes to beneficiaries gift-tax efficiently.
• Irrevocable Life Insurance Trusts (ILITs):
  • Hold large life insurance policies outside your estate so death benefits can fund estate tax without being taxed themselves.
  • Often combined with SLATs or dynasty trusts where liquidity is a concern.
• Dynasty / GST-exempt trusts:
  • Use GST exemption to create long-term trusts for descendants that avoid estate tax at each generation, subject to state rule against perpetuities limits.
  • Particularly powerful in states like South Dakota, Delaware, Nevada, and Alaska that allow very long or perpetual trusts.
• Charitable lead or remainder trusts (CLTs/CRTs):
  • Blend philanthropy with tax and income planning, particularly for appreciated assets.
  • Can reduce or defer capital gains and estate taxes while benefiting charities and family.

Why 2023-2025 is a critical planning window

• Valuations and structuring take time, especially for operating businesses and complex portfolios.
• Private client, valuation, and CPA firms are already seeing increased demand as 2025 approaches, which may lengthen timelines and raise fees.
• Sequential planning (for example, forming an LLC, obtaining valuations, then executing a sale to a trust) can easily span 6 to 12 months.

How do state estate and inheritance taxes affect your plan?

Several US states impose their own estate or inheritance taxes with lower exemptions than the federal level, which can significantly change your planning priorities. Where you live, where your property sits, and where your trusts are based all influence the combined tax cost.

Which states have separate death taxes?

States regularly adjust their rules, but as of recent years, states like New York, Massachusetts, Oregon, Washington, Minnesota, and others impose estate or inheritance taxes. Many of these have exemptions in the $1-5 million range, well below the federal level.

How should you coordinate federal and state planning?

• Residence planning: Consider whether moving or changing domicile to a no-estate-tax state (e.g., Florida, Texas) aligns with your life and family plans.
• Titling and situs: Work with advisors to review where your tangible property, real estate, and investment accounts are legally "located."
• State-specific documents: Wills, revocable trusts, and certain irrevocable trusts should match the laws of your domicile or chosen trust jurisdiction.
• "State cliff" planning: In states with cliff rules, crossing a threshold by a small amount can cause tax on the entire estate, which can be managed by charitable bequests or lifetime giving.

What does a typical US private client planning process look like and how long does it take?

A sophisticated private client planning process usually runs from several weeks for basic updates to many months for advanced trust and business-entity strategies. The more assets, jurisdictions, and family members involved, the longer and more iterative the process.

Typical stages and timelines

1. Discovery and objectives (2-6 weeks)
   • Asset inventory, family structure, and existing documents review.
   • Clarify goals: tax savings, asset protection, control, philanthropy, governance.
2. Design and modeling (4-8 weeks)
   • Scenario modeling for different structures and gift amounts.
   • Coordination between lawyer, CPA, investment advisor, insurance advisor, and business counsel.
3. Implementation (2-6 months, sometimes longer)
   • Drafting and negotiating trust, partnership, corporate, and governance documents.
   • Valuations, bank account openings, and actual transfers of assets.
4. Tax reporting and follow-up (ongoing)
   • Gift tax returns, state filings, and trust administration.
   • Annual reviews as exemptions, markets, and family situations change.

How much do sophisticated estate planning and private client services cost?

Fees for private client and advanced estate planning in the US vary widely based on complexity, geography, and firm profile, but high-net-worth families should expect five-figure, and sometimes six-figure, professional costs for multi-entity, multi-trust planning. These costs are often small compared to the potential tax savings and risk reduction achieved.

Many firms bill hourly; others offer fixed or phased fees for defined projects. Ask for scope, assumptions, and what happens if the plan needs substantial mid-course changes.

When should you hire a private client lawyer or expert?

You should hire a private client lawyer if your projected net worth is likely to exceed the post-2025 estate tax exemption, if you own a closely held business or large life insurance, or if you have complex family or cross-border issues. The earlier you begin before the 2025 sunset, the more options you will have and the less likely you are to be caught in the late-2025 rush.

Specific triggers that call for expert help

• Asset-level triggers:
  • Single individual approaching or over $8 million net worth.
  • Married couple approaching or over $15 million, especially with significant expected growth.
  • Ownership of an operating business, large real estate portfolio, or concentrated equity position.
• Situational triggers:
  • Second marriages, blended families, or beneficiaries with special needs.
  • Children or assets in multiple states or countries.
  • Desire to create family foundations, donor-advised funds, or long-term trusts.
• Time-sensitive triggers:
  • Planning to sell a business or large asset in the next 3-5 years.
  • Approaching 2026 without having used any of your extra exemption.
  • Recent inheritance or liquidity event that changes your balance sheet.

What professionals should be on your team?

• Private client / estate planning lawyer as lead architect.
• Tax advisor or CPA to model scenarios and handle filings.
• Investment advisor / family office to align investments with the trust and entity structures.
• Insurance professional for ILITs and liquidity needs.
• Corporate / M&A counsel if you own a business that may be sold or restructured as part of the plan.

What are the best next steps if you want to act before the 2025 sunset?

If you want to capture today's high exemptions, you should immediately quantify your exposure, define your comfort level with gifting, and engage an experienced private client team to design and implement a plan well before the end of 2025. Acting in 2024 or early 2025 gives you the best chance to choose structures deliberately instead of rushing at year end.

Action plan for the next 90 days

1. Gather information
   • Create a detailed personal balance sheet listing all assets and liabilities with rough values.
   • Collect existing wills, trusts, partnership agreements, buy-sell agreements, and insurance policies.
2. Book consultations
   • Schedule meetings with a private client lawyer and your CPA to discuss the 2025 sunset impact on your situation.
   • Ask specifically about "use it or lose it" strategies, SLATs, and whether advanced trusts make sense for you.
3. Decide your gifting range
   • Work with your advisors to determine how much you can comfortably transfer without endangering your lifestyle or resilience.
   • Consider a combination of "hard to replace" core assets you keep and growth assets you move to trusts.
4. Prioritize structures
   • If married, evaluate at least one SLAT as part of your plan.
   • Identify whether business or real estate interests should be moved into entities and trusts now.
5. Set an implementation timeline
   • Agree on a target date with your advisors to have your initial structure signed and funded, ideally several months before December 31, 2025.
   • Map out follow-up tasks such as valuations, gift tax returns, and beneficiary education.

By acting methodically now, you can take maximum advantage of the current law, reduce future estate taxes, and build a durable structure for your family's wealth long after the 2025 sunset.