The 2026 estate tax exemption sunset: How to prepare – and why you need to do it now


Steve Lockshin

Founder, Vanilla

Arielle Lederman

Arielle Lederman

Senior Advisor, AdvicePeriod



Steve Lockshin

Founder, Vanilla

Arielle Lederman

Arielle Lederman

Senior Advisor, AdvicePeriod

May 24, 2023
1 hour

For the past few years, most US tax residents haven’t needed to worry too much about estate tax. But that’s all about to change.

At the end of 2025, the historically high estate exemption of $12.92M ($25.84 million per married couple) will sunset back down to an estimated $6-8 million per person or $12-16 million per couple (adjusting for inflation) – suddenly making the estate tax an important consideration for many more households. And the time to act is now.

In this webinar, you’ll learn:

  • How the estate tax exemption sunset will impact your clients
  • Key strategies including SLATS, gifting, and more to help clients prepare for the sunset
  • How to help clients who are reticent to move assets out of estates

Looking for a guide to 2026 estate tax exemption for your clients? Download here.

Excerpts from the webinar:

What is the 2026 federal estate tax sunset?

Arielle Lederman: So as of today, each individual has a lifetime gift and estate tax exemption of approximately $13 million. This means that you can give away up to $13 million during your lifetime or at your death without incurring any taxes. For a married couple, the combined exemption is $26 million. This means that as a couple, you can give away up to $26 million tax-free.

However, it’s important to note that in 2026, at the end of 2025, the current law that increased the exemption amount will revert back to the previous law, which had a lower exemption. At that point, the individual exemption will drop from $13 million to approximately $6 million.

So, after the law changes, each person will have an exemption of around $6 million, and a married couple will have a combined exemption of around $12 million. It’s crucial to understand that the exemption is a “use it or lose it” situation. If you utilize the full $13 million exemption today, you have effectively given that amount away tax-free, and it will not be impacted by future law changes.

On the other hand, if you only use $6 million of your exemption today and wait until 2026 to make additional gifts when the exemption reverts back to $6 million, you will have already utilized your entire exemption and will not have any remaining exemption available. Therefore, it’s essential to take advantage of the increased exemption now, or else you risk losing it in 2026.

What are some other considerations when deciding whether or not to use your exemption?

Steve Lockshin: We don’t know the exact number. It’s inflation dependent. So let’s call it somewhere between six and eight million. If you’re approaching that threshold as an individual or twice that threshold as a couple, then I think it’s worth at least having the discussion and understanding what might happen. And just again, to put things in perspective – you could work at a tech company and have options that are worth – let’s call it that seven million dollar amount. But when you exercise them, you’re gonna pay a lot of income tax, which is gonna bring your taxable stay down. So maybe they don’t need to do something. So advisors should understand. Understand the income tax perspective. Understand this trajectory, understand the age, understand the health of the relationship? Or am I using one exemption or two exemptions?

Don’t split your exemption if you’re at the bubble, as Arielle mentioned, if you’ve got a $13 or 14 million dollar estate. Now don’t just divide it in half over two years, because in 2026 you have wasted the other half. Use all of one partner’s exemption and leave the other one intact. So there are lots of things you can do. But being aware is the most important one.

How should you evaluate which assets to use for the estate tax exemption?

Arielle Lederman: We’re looking at the clients’ overall picture, honing in on assets that are likely to appreciate in value is the first thing I always consider. For instance, if the client is on the cusp and works at a tech startup with a significant amount of founder stock that may currently have a low valuation, but we have high conviction it will appreciate in value.

That’s something I would focus on and think about moving today. We have a low valuation now and a strong belief in future appreciation. Waiting would create a much bigger problem, as we would have to transfer it at a much higher valuation. So that’s a priority for me. I also look for income-producing assets. For example, let’s consider a client with diversified assets, including a rental property generating income. These types of assets are beneficial for the next generation, providing cash flow and also for the client. If, for instance, the client decides not to make a gift to the trust, they could consider selling the asset to the trust in exchange for a promissory note, which is a variation of the plan we discussed. There may be reasons to structure it that way for other purposes.

Tool to consider: Spousal Lifetime Access Trust

Arielle Lederman: Yeah, and that’s something Steve touched upon. A SLAT, short for spousal lifetime access trust, is an irrevocable trust that includes multiple beneficiaries, one of whom is the spouse. Essentially, it allows the client to establish a trust where the assets are given to descendants but provides a level of comfort by ensuring that if needed, the funds can be accessed by the client indirectly through the spouse as a beneficiary trustee.

However, it’s important to note that SLATs have their ups and downs, and there is a caveat. The effectiveness of a SLAT depends on the spouse being alive, as the direct access to the trust as a beneficiary is lost upon the spouse’s passing. Additionally, the SLAT’s effectiveness is tied to the status of the marriage. If a divorce were to occur, the spouse would also lose access to the trust assets through their marital connection.

A SLAT is a strategy that can provide indirect access to trust assets through a spouse, but it is contingent on the spouse’s life and the continuation of the marriage.

What if clients are hesitant to use their exemption today but want to be prepared for the estate tax sunset?

Arielle Lederman: So what some clients might decide to do is prioritize getting everything in place immediately. They express the importance of not waiting until the end of 2025. We want to establish the structure today. Instead of making a direct gift of that strip mall, we opt to sell it. We make a relatively small gift of around one million dollars to the trust and sell the strip mall to the trust in exchange for a promissory note or something similar.

By doing this, the clients only utilize one million dollars of their exemption, but they hold an IOU from the trust. As we approach the end of 2025, the client takes a closer look at their balance sheet.

They feel comfortable relinquishing the cash flow from the promissory note, believing they have enough assets elsewhere. The client forgives the promissory note, which is a straightforward process.

By utilizing their remaining exemption before the end of 2025, they have effectively completed the process. With the forgiveness documented on a simple piece of paper, everything else is in order, and the client has positioned themselves to make a quick decision at the end of 2025 without much additional thought at that point.

How should clients go about selecting a trustee?

Arielle Lederman: In my view, I think your best case scenario for a trustee, and what I always recommend is that someone independent act as trustee. So that means someone who is not related to you and doesn’t work for you. So a trusted friend or adviser, But something is not related to you, and I think that tax-wise and optically, that’s your best case scenario from both perspectives.

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