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Published By Joel S. Luber

December 22, 2025

It is not often that we can send out a letter close to the end of the year without any expression of “panic” that something needs to be completed before December 31. (If that were the case for 2025, you would have heard from us much sooner than this). In this year-end client update, we are describing a number of legislative and related estate planning and asset protection developments that we believe are most relevant to our clients. This is not intended to be technical in nature or specific to any client, but rather a review of issues that we believe our clients would find most interesting and relevant to their planning.

Key 2026 Numbers at a Glance

The IRS released the 2026 inflation-adjusted exemptions and exclusions for estate, gift, and generation skipping transfer (“GST”) tax in Rev. Proc. 2025-32 as follows:

  • Estate/Gift/GST Exemption: The estate, gift, and GST tax exemption amount (the “Exemption”), which is currently $13.99 million, will increase to $15 million for 2026 ($30 million per couple). Despite the increase in the estate and gift exemption amount, clients should always consider filing estate tax returns upon the death of the first spouse to transfer (port) the unused estate tax and gift tax exemption of the first spouse to the surviving spouse. [There is no portability of the GST exemption.]
  • Annual Exclusion: The annual gift tax exclusion will remain the same amount as in 2025, $19,000.
  • Non-Citizen Spouse Exclusion: The gift tax exclusion amount that can be given annually to a non-citizen spouse is increasing from $190,000 up to $194,000 next year.

One Big Beautiful Bill Tax Act

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (the “Bill”). The Bill extends many of the provisions in the 2017 Tax Cuts and Jobs Act (“TCJA”) and adds additional income tax and business tax provisions. A summary of some Bill provisions that clients may be most interested in is provided below. Many comprehensive summaries of the Bill can be found online.

  • Rate Continued: The Bill maintained the 40% estate tax rate for estates over the Exemption (over $15 Million reduced by prior use of the Exemption through lifetime gifts). Accordingly, if an unmarried individual dies with a taxable estate in excess of $15 Million in 2026, or a couple (assuming a portability return was filed upon the death of the first spouse) dies with a taxable estate in excess of $30 Million in 2026, then only the excess above the unused Exemption will be subject to estate tax at 40%.
  • Step Up in Basis Maintained: The Bill did not eliminate “step up” in income tax basis available at death. Thus, assets owned by a decedent at death and included in their gross estate will receive a step up in income tax basis to date of death fair market values. As a result, beneficiaries of such assets will have no capital gains tax on pre-death appreciation. If the inherited assets are sold shortly after death for fair market value, capital gains tax will likely be minimal.

Planning Implications

The Bill allows for the continuation of current planning strategies and does not require immediate action before year-end, as previously feared, to take advantage of the TCJA Exemption amounts. Nonetheless, clients who have not already utilized their Exemptions should consider gifting strategies so that the appreciation on such gifted assets pass estate and generation skipping transfer tax-free to trust beneficiaries. This can be done through the following strategies:

  • SLATs, Dynasty Trusts, and Other Irrevocable Trust Gifts: Married clients should consider creating one or more Spousal Limited Access Trusts (“SLATs”) (irrevocable trusts created by one spouse primarily for the other spouse that utilizes the gifting spouse’s lifetime exemption and freezes the value of the gifted assets). Clients, whether married or single, should consider Dynasty Trusts for children and/or grandchildren (typically SLATs for the benefit of a spouse during the spouse’s lifetime are also drafted to be Dynasty Trusts upon the death of the beneficiary spouse). Irrevocable trusts often provide the settlor with a “substitution power” which is a technique that can be utilized to allow the settlor to swap assets held by the settlor for assets of equivalent value held by the trust so that upon the settlor’s death, the settlor’s estate includes mostly assets that have significant appreciation and benefit from the step up in income tax basis at death and the SLAT or Dynasty Trust has mostly high income tax basis assets.
  • GRATs: Another popular and effective technique is a grantor retained annuity trust (“GRAT”) that allows a settlor to make an irrevocable gift to a trust and retain the right to receive back assets based upon the initial value of the GRAT gift over a period of typically two years or more and convey most post-gift appreciation gift-tax free to children or other remainder beneficiaries.
  • Annual Exclusion Gifting: Clients should consider annual exclusion gifts to family members (or others). The annual exclusion for the years 2025 and 2026 is $19,000 per person or $38,000 if a split-gift election is made among spouses (or if both spouses each make a gift to the beneficiary).
  • 529 Plan Account: Clients should consider funding 529 education plans for their children and/or grandchildren. Clients can contribute 5-years’ worth of contributions in one year to a 529 account, provided they file a gift tax return reflecting such, but then must delay until the sixth year to make an additional tax free 529 gift or annual exclusion gift to the beneficiary of the 529 plan. The Bill revised the definition of qualified higher education expenses, now allowing 529 accounts to be used for an expanded range of K-12 expenses, including books and other curriculum materials, some testing fees, and some educational therapies for students with disabilities. In addition, the tax-free withdrawal limit for K-12 expenses increased from $10,000 to $20,000 per year. And, effective as of January 1, 2024, certain unused 529 plan funds can be rolled into the beneficiary’s Roth IRA without a tax penalty, subject to restrictions including, but not limited to, a lifetime limit of $35,000 and the requirement that the 529 plan must have been maintained for the beneficiary for at least 15 years.

Other Important Considerations

  • Donor Advised Funds: A comprehensive DAF agreement should: (i) list successors to the donors who may suggest charitable distributions (e.g., the donor’s children, by majority, can make such requests) and (ii) specify the donor’s default charitable beneficiaries (or specify that a stated percentage of DAF gifts continue to be made to specified charities or causes).
  • Revocable Trust Funding:
    • General: Revocable Trusts do not provide clients with asset protection and are includible in the settlor’s/grantor’s taxable estate, but assets owned by a Revocable Trust avoid probate on death. For single clients or clients who are married, but do not own their home or other assets jointly with their spouse, Revocable Trust funding is an important consideration.
    • Revocable Trust Funding for Unmarried Clients: Single clients should consider funding their Revocable Trust (other than with retirement assets, annuities, and life insurance) to avoid probate on such assets upon death
    • Revocable Trust Funding for Married Clients: Clients who do not own assets as tenants by the entirety or jointly with their spouse should also consider funding their respective Revocable Trusts (other than with retirement assets, annuities, and life insurance) to avoid probate on such assets upon death.
  • Review existing life insurance and retirement plan beneficiary designations: Clients should review their current life insurance policies, including the primary and contingent beneficiaries thereof, to make sure such adequately satisfies their objectives and to determine whether modifications should be made to such policies. In addition, clients should review their retirement plan beneficiaries (both primary and contingent) to ensure they meet their current objectives.

We encourage clients to schedule an “estate planning checkup” every three to five years, or sooner if personal or financial circumstances materially change. While we address matters we believe are of interest to many in this year-end letter, there are a plethora of year-end planning options that are not discussed.

For help with your estate planning, contact Joel S. Luber, Chair of RRD’s Wills, Trust & Estates Practice Group at jluber@regerlaw.com or call 215-495-6500.