To Hedge Against Estate Tax Exclusion Changes, Try Disclaimers
What You Need to Know
The Tax Cuts and Jobs Act doubled the estate tax exclusion in 2018.
In 2026, the exclusion is set to revert to the old, 2017 level, adjusted for inflation.
A disclaimer trust may help a surviving spouse cope.
Lloyd Lofton has an idea for how to help wealthy clients cope with the Year 2026 problem: Make sure you — and they — know great trust and estate lawyers.
Estate tax exclusions might, or might not, return to the old (lower) 2018 levels on Jan. 1, 2026.
Lofton mentions one possible solution, the disclaimer trust, in an upcoming commentary provided to ThinkAdvisor.
“An example of someone who would benefit from a disclaimer trust is an individual who wants to maintain flexibility in estate planning,” Lofton said in the commentary.
The Marietta, Georgia-based sales coach said that, under current rules, the surviving spouse can use a disclaimer trust to adapt to changes in estate tax rules or other conditions.
What It Means
Because of uncertainty about the future of the estate tax rules in the federal Tax Cuts and Jobs Act of 2017, you may need to dust off guides to estate planning and take your favorite trust and estate lawyers out to lunch.
Estate Taxes and the Tax Cuts and Jobs Act
Estate and gift taxes accounted for $33 billion of the U.S. federal government’s $4.9 trillion in revenue in 2022, according to White House budget analysts.
In 2017, an individual could exclude $5.49 million from federal estate taxes, and a couple could exclude $10.98 million.
In 2018, the Tax Cuts and Jobs temporarily doubled the exclusion limits. For 2023, the inflation-adjusted exclusion limits are $12.92 million for an individual and $25.84 million for a couple.
On New Year’s Day 2026, if Congress does not extend the TCJA estate tax changes, the exclusions could revert to the 2017 levels, adjusted for inflation, or about $6 million for an individual and $12 million for a couple.
The Committee for a Responsible Federal Budget includes an explanation of why Congress might let the estate tax exclusion increase sunset in its new interactive federal debt fixer tool.
