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Is 2026 An Important Year For Your Wealth?

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January 1st, 2026 may not be on your radar. But if you are married, wealthy, and own appreciable assets like a growing business, a real estate portfolio, or investments that could be worth tens of millions or more before you die, it should be.

Why? Because once 2026 arrives, many of the tax adjustments that were part of the 2017 Tax Cuts and Jobs Act (TCJA) are expected to expire. For wealthy couples, the most impactful change could be a significant reduction in the estate tax exemption, which in 2022 currently stands at $12.06 million per person (or $24.12 million per couple). Based on current law, these higher exemption amounts will revert to the 2010 level of $5 million, adjusted for inflation, or roughly $6.4 million ($12.8 million per couple) in 2026 – about half of what it is today – with a federal tax rate on estates over these exemption amounts of 40%, plus state death taxes if you reside in a state that has one.

It would take an act of Congress to avoid the expiration of the high exemptions at the end of 2025. And considering record levels of national debt and aggressive government spending priorities, it’s reasonable to believe that raising revenue through taxes could be a priority over the coming years. For these reasons, the Wealth Management Teams at Heritage Financial are talking to clients now about this tremendous opportunity to lock in today’s all-time high estate tax exemption levels to help minimize federal estate taxes and maximize what they can leave to their heirs.

The Spousal Lifetime Access Trust – A Unique Opportunity

A Spousal Lifetime Access Trust (SLAT) is a key estate planning tool we discuss with clients whose net worth includes significant appreciable assets that already or at some point in the future (before death) could meaningfully exceed the likely combined exemption amount in 2026 ($6.4 million per person or $12.8 million per couple), assuming a reversion of this aspect of the TCJA.

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Key features of this trust include:

  • An irrevocable trust set up by each spouse (the grantor) for the benefit of the other spouse (the beneficiary); (note: the irrevocable trusts cannot be identical)
  • Funding of each trust by the respective grantor in an amount up to the current available estate exemption ($12.06 million each, or a total of $24.12 million) without incurring a gift tax
  • Removal of the gifted assets from the grantor’s estate, protecting those assets (and their future growth) from estate taxes
  • Access to trust income and/or principal by the spousal beneficiary under certain provisions, if needed
  • Trust income that is taxed back to the grantor instead of the trust, effectively allowing the assets in the trust to grow tax-free
  • Remainder beneficiaries (typically the children) receive the assets at the termination of the SLAT, most often when the beneficiary spouse passes
  • The ability to structure the SLAT as a generation skipping trust

This strategy is powerful as it includes each spouse setting up a SLAT for the benefit of the other. With each spouse funding their respective trusts up to the current estate tax exemption amount of $12.06 million, together they can shield more than $24 million in assets from estate tax, and even more when you consider future growth and income from those assets. For wealthy couples, this strategy is significant for tax savings and legacy planning. A modified version of this strategy can also be used with wealthy individuals.

It’s worth noting that a key feature of the strategy includes setting up irrevocable trusts, which of course means relinquishing some control. Couples that pursue this strategy still need to maintain control over enough remaining assets to live comfortably after funding their respective SLATs. As such, we’ve seen this strategy work well for wealthy couples that have or can be reasonably expected to have assets in the range of at least $15 million or more.

An Opportunity Too Great to Wait

With the estate tax exemption level at an all-time high and the likelihood that it will be cut in half about three years from now, the opportunity is immense. Funding a SLAT with the full $12.06 million exemption amount today could save roughly $2 million in taxes at the death of the first spouse (not including any state estate tax, which varies by state) in comparison to just shielding about $6 million after January 1st, 2026.

But it’s three years away. Why act now?

Nothing this impactful comes without some complexity. The SLAT strategy is no exception. We’ve seen first-hand what it takes to properly execute this type of estate planning strategy. In cases we’ve worked on, the process involved not only our wealth managers with financial planning expertise, but also estate planning attorneys and tax accountants. The coordination and general education of all parties takes time. And overlooking just one small detail (e.g., setting up identical trusts for each spouse which violates the reciprocal trust doctrine) can negate the tax benefit.

But it’s not just the technical details that need to be addressed. We’ve learned that clients need time to understand what’s at stake versus the benefits. They need to get comfortable with the idea of removing a large amount of wealth from their current estate for the benefit of their beneficiaries. They need time to discuss it with their families. And for those clients whose wealth includes a business or real estate assets, it takes time to get the appropriate valuations complete.

January 2026 is years away – but for wealthy couples, the time to plan for the likely expiration of this tremendous opportunity is now.

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Source: Forbes

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