How to Plan for Estate Tax Exemptions Expiring December 2025

As we look ahead to 2026, advisors are preparing clients for a significant shift in estate tax laws. The looming sunset of the current estate tax exemption presents an opportunity for advisors to guide high net-worth families in mitigating potential tax liabilities while helping your clients act on deeply felt charitable ambitions.

Understanding the Landscape

In 2024, the estate tax exemption stands at $13.61 million per person or $27.22 million per married couple. Come 2026, the exemption is slated to plummet back to 2017 levels, adjusted for inflation, amounting to approximately $7 million per person. This reduction underscores the urgency for proactive planning among affluent individuals and families.

Harnessing Charitable Strategies

By integrating charitable strategies into their gifting plans, clients can alleviate the impact of the sunset provision. For instance, business owners can leverage gifting programs to transfer shares of their enterprise to both heirs and charitable funds, capitalizing on the higher exemption thresholds. This approach not only diminishes the estate’s value but also allows for a seamless business transition aligned with the client’s long-term objectives.

Annual exclusion gifts offer another practical mechanism for reducing taxable estates without encroaching upon the lifetime gift and estate tax exemption. Many philanthropic individuals leverage annual exclusion gifts as a blueprint for their charitable contributions.

Optimizing Estate Plans

Updating estate plans to include bequests to community foundations or other qualified charities emerges as a prudent strategy to mitigate estate tax liabilities. Unlike assets passing to heirs, amounts designated for charitable purposes upon a client’s demise are exempt from estate tax. In addition to bequests clients have other options to give through their estate:

• Designating a qualified charity as a beneficiary of an account;
• Charitable Remainder Unitrust (CRUT) or Annuity (CRAT);
• Charitable Lead Trust Annuity (CLAT) or Unitrust (CLUT); and
• Insurance Policies.

A detailed guide to planned giving options is on our website here.

Exploring Options Well Before the Change Will Pay Off

As 2025 draws near, advisors are faced with complex tax planning decisions amidst legislative uncertainty. When the landscape is this dynamic, Rochester Area Community Foundation shines.

Our team is ready to assist advisors and their clients in crafting tailored solutions that align with their charitable objectives and financial interests. Send us a note and let us match you with the philanthropic advisor who can best meet your clients’ needs: giving@racf.org.

The Bottom Line: Benefits for Clients

With advanced planning, your clients can leverage the opportunities that come with change. Let us know how we can help you and your clients achieve goals like:

• Minimizing tax liabilities across generations and business transitions;
• Leaving a meaningful legacy that extends beyond financial wealth; and
• Choosing from a variety of flexible charitable solutions to meet unique needs.