January 1, 2026 is a pivotal date in estate planning as the federal gift and estate tax exemption, presently at $12.92 million ($25.84 million for couples), is slated to drop to $5 million ($10 million for couples). To navigate this change, proactive planning can significantly reduce or eliminate future gift and estate taxes. For instance, an individual with an $8 million estate could save approximately $800,000 in federal estate tax by preemptively transferring assets to heirs before the exemption reduction.
For those not ready to transfer substantial wealth to the next generation immediately, there are strategic options to leverage the current exemption while maintaining flexibility. One such strategy involves Spousal Lifetime Access Trusts (SLATs), where married individuals can remove wealth from their estates while retaining indirect access. However, caution is needed to avoid the reciprocal trust doctrine, which may jeopardize tax benefits. Additional techniques include Special Power of Appointment Trusts (SPATs), Domestic Asset Protection Trusts (DAPTs), and Qualified Personal Residence Trusts (QPRTs), each offering a unique approach to preserving assets and minimizing tax implications. As legislative changes may occur before the 2026 deadline, contact us to stay informed and adapt to strategies accordingly.
