Estate planning for tax-year 2026: Readiness beyond exemptions

Many of us see estate planning as a one-time task to complete, but determining how you want to pass on your assets to beneficiaries is an ongoing process. Life events, such as changes in family structure, financial circumstances, or health, can prompt updates to your plan. So can shifts in tax law, which may open new opportunities or require adjustments to preserve your intentions. Recent tax law changes may also create reasons to revisit existing strategies.

Regardless of tax law changes, you should review and update your estate plan regularly to reflect your current situation. By continually adapting your estate planning strategy to your circumstances, you can pass down assets according to your wishes while maximizing what you leave behind to the people and causes you care about.

A new baseline: estate and tax planning in 2026

With the passage of the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, Congress introduced new thresholds that impact estate and gift tax planning conversations for 2026 and beyond.

For estate planning, the most significant change is the increase in the federal estate and gift tax exemption to $15 million per individual (or $30 million per couple), effective January 1, 2026. This new exemption is a fresh baseline, indexed for inflation going forward. The top estate and gift tax rate remains at 40%.

Clients who previously used their full exemption may now consider "topping off" gifts to align with the new limits. Others may revisit valuation discounts, GRATs, or other strategies to remove future appreciation from the estate.

Core estate planning documents for early-stage planning

The following documents are essential components of any estate plan.

Wills and revocable trusts

In a will, you state your wishes about distributing your assets to beneficiaries, including leaving donations to charities. If you have substantial assets or want more control over what happens to your assets, consider passing down assets through a revocable trust. A revocable trust lets you transfer an inheritance to your heirs more quickly, privately, and cost-effectively than through a will. A will and revocable trust help ensure your wishes are followed, while facilitating smoother estate administration.

A revocable trust is not subject to probate, the legal process of reviewing a person's will and distributing their assets to heirs. Probate is also a public process that makes the details of your estate visible to the general public.

Health care proxies and powers of attorney

Estate planning documents can also protect you and your family if you face a health issue that leaves you incapacitated and unable to make decisions about your health or finances. With a health care proxy, you name an individual who will make health care decisions for you. A durable power of attorney names a person or institution appointed to take care of your finances if you cannot do it yourself.

Mid-stage estate planning: Gifting strategies and irrevocable trusts

Once your core estate planning documents are in place, consider how you can give money to loved ones in a tax-efficient way.

The annual per recipient gift tax exclusion remains at $19,000 for 2026 (or $38,000 for a married couple splitting gifts).

This is a simple, effective way to transfer some of your wealth to beneficiaries without impacting your lifetime estate and gift tax exclusion amounts or having to file a gift tax return. Incorporating annual exclusion gifts into your planning strategy will help reduce the size of your taxable estate over time and thus lower any potential estate tax liability.

Note, a gift-tax return may still be required when spouses elect to split gifts, when a transfer is not a present-interest gift, or when other reportable gifts are made during the year.

Funding irrevocable trusts

Trusts hold property on behalf of one or more people and can be a key part of estate planning. If the value of your estate may exceed the estate tax exemption, it may be worth contributing assets today into an irrevocable trust that will benefit your children and grandchildren. Assets transferred to an irrevocable trust are generally removed from your taxable estate, allowing future appreciation to occur outside of the estate tax system.

However, reducing estate taxes does not automatically reduce income taxes. While irrevocable trusts can be effective for transferring wealth outside of your estate, trusts often reach the highest federal income tax brackets at much lower income levels than individuals. As a result, selecting the right assets, trust structure, and tax status can be just as important as reducing estate tax exposure. In today's environment, families should evaluate both estate tax and income tax consequences when considering gifts, trust funding strategies, and long-term wealth transfer plans.

Note, if contributions to an irrevocable trust exceed the annual exclusion amount, you will need to file a gift tax return which will track the use of your lifetime exemption amounts.

Advanced estate planning: Estate freeze techniques

Grantor Retained Annuity Trusts (GRATs)

Once you have exhausted your lifetime estate and gift tax exemption, there are other options to consider in order to further mitigate estate taxes and shift growth outside of your taxable estate. GRATs are irrevocable trusts that allow you to transfer asset appreciation, often publicly traded securities, with little or no gift tax exposure. Assets are contributed to a GRAT, and in return, the grantor receives annual annuity payments back from the trust for a specified period. Any appreciation that exceeds the minimum interest rate on these payments at the end of the term will pass to beneficiaries outside of the taxable estate, effectively freezing the value of assets that were contributed.

Intra-family loans

Intra-family loans can help you transfer wealth efficiently, especially when interest rates are low. Family loans can support family members without reducing your lifetime estate tax exemption.

However, note that the IRS requires that any loan between family members come with a signed written agreement, a fixed repayment schedule and a minimum interest rate set by the IRS. The interest earned on the loan is taxable income and depending on how the loan is used, the interest paid may be tax deductible.

Advanced estate planning: Charitable giving

Incorporating a Donor-advised fund (DAF) or private foundation into your estate plan will reduce your taxable estate and mitigate potential tax liabilities. By contributing cash, stocks, business interests and other assets to a DAF or private foundation, you immediately reduce your taxable estate and receive an income tax deduction in the year the gift is made. Note, structuring and implementing a private foundation will require further discussion with your estate attorney and tax advisor as there are specific rules to be aware of regarding the implementation, tax treatment and administration.

Irrevocable "split interest" trusts provide ways to benefit your heirs and the charities you support while further reducing your taxable estate. These trusts can also be effective tools for income tax planning around concentrated stock positions and low basis assets, allowing you to manage capital gains and receive income tax deductions.

A Charitable Remainder Trust (CRT) allows you to transfer concentrated, low-basis stock to the trust. The CRT can then sell contributed appreciated assets without recognizing the entire gain immediately at the time of sale. Instead, taxable income and gain are generally carried out to the income beneficiaries with annual income payments for a specified term or for life. After the term ends, the remaining assets in the trust are donated to a designated charity, which can be your DAF or private foundation.

Conversely, a Charitable Lead Trust (CLT) provides annual distributions to a charity for a specified term. After the term ends, the remaining assets in the trust are transferred to non-charitable beneficiaries. Depending on how this trust is structured, the grantor or the trust itself will receive the income tax deduction and be responsible for income taxes generated during the trust term.

Consult with your advisor to update your estate plan

Your wealth advisor can help you determine your goals, legacy, and tax strategy, as well as which trust, or other estate planning tools are most appropriate to help you accomplish your estate planning and other related financial goals. By establishing and building a relationship with your wealth advisor, you will benefit from a collaborative and continuous relationship and be better positioned to address changing circumstances, laws, and legacy goals. Schedule a consultation with a Citizens Private Wealth Advisor to review or update your estate planning and wealth transfer goals.