For years, estate and gift tax planning strategies for ultra-high-net-worth families have remained in limbo — with the expanded transfer tax exemption amount set to drop from $13.99 million in 2025 to roughly $7 million per individual in 2026.
Under the recent tax and spending megabill, wealthy clients have the certainty they need to engage in wealth transfer strategies designed to minimize tax exposure. And while these high-net-worth clients can plan for wealth transfers between generations, the legislation also made significant income-tax-related changes that will affect the wealthiest families and their choices going forward.
Wealthy clients with assets that are expected to appreciate in value should be advised on the range of trust structures that can be used to transfer wealth to future generations on a tax-favored basis.
Tax Law Changes Affecting Estate Plans: The Basics
For 2025, the transfer tax exemption was set at $13.99 million per individual ($27.98 million per married couple). While that rate would have dropped to roughly $7 million had Congress not decided to extend the post-2017 expansion, the new law increased the estate tax exemption to $15 million per individual ($30 million per married couple). Starting in 2026, those amounts will be indexed for inflation.
These amounts are extremely generous, but high-income families should also understand that they will not receive the benefit of an expanded deduction for state and local taxes. Even though the bill increased the SALT cap from $10,000 to $40,000 starting in 2025, the cap will phase out for high-income taxpayers.
Pursuant to the legislation, the generation-skipping transfer tax exemption is now also aligned with the estate tax exemption amount ($15 million per individual), allowing for certainty when it comes to establishing dynasty trusts designed to benefit multiple generations within a family.
The rates governing trusts and estates were also made permanent, allowing for greater certainty for clients when establishing irrevocable trusts.
The bill also created a limitation on the itemized deduction for charitable contributions, as well as an overall limit on itemized deductions for the highest-income taxpayers. Taxpayers who itemize will be entitled to deduct contributions only to the extent that they exceed 0.5% of the taxpayer’s adjusted gross income. That disallowed portion may be carried forward if the taxpayer has other charitable contribution carryforwards for the tax year.
Estate Planning Strategies to Consider
A grantor retained annuity trust essentially combines a trust established for a certain predetermined period of time with an annuity that pays the client, as trust creator, a set value each year of the trust’s existence. This annuity payout is the client’s retained interest. The remaining value passes to the client’s beneficiaries, and, thus, out of the estate. The assets funding the trust, meanwhile, can also be passed into a trust at the end of the GRAT term to delay the beneficiary’s receipt for asset protection purposes.
Any appreciation on the assets — which could be substantial for high-income taxpayers — pass gift-tax free. If the client dies during the GRAT period, however, the annuity payments are made to the estate, and the funding assets will remain in the client’s estate.
Further, clients should know that because the GRAT is a grantor trust, its income and deductions are included on the client’s federal tax return until the principal assets are transferred out of the trust.
Clients who commonly make substantial charitable gifts might want to donate to a donor-advised fund to group the deductions into a single year but provide the charity with the actual financial benefit in later years. A donor-advised fund is an account set up with a financial institution that can be funded with a large donation in a single year but allows the client to direct funds to the charity or charities at their discretion to continue to provide a more steady stream of support to the client’s chosen organizations.
Charitably inclined clients in high-tax states may be particularly interested in charitable lead annuity trusts for tax-efficient charitable transfers. These trusts provide annual payments to a charity, or donor-advised fund, for a fixed set of years. After that period, the assets pass to the creator’s non-charitable beneficiaries. Depending on the structure, the CLAT can serve to generate large up-front income tax deductions for the client while also transferring appreciated assets to future generations outside of the client’s estate and using up none of the client’s exemption amount.
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