The Gift Clock is Ticking: Tax Changes to Expect in 2026
Federal tax laws are changing on January 1, 2026. What does this mean? It means the amount that you can give away without gift or estate tax will be cut in half.
With that in mind, here’s what you need to know…
CHANGES IN THE LAW WILL MAKE IT HARDER TO MAKE GIFTS IN TAX-ADVANTAGED WAYS
Today, a married couple can give away, either during their lifetimes or at death, assets totaling about $25.8 million without any gift or estate tax. That’s not including annual exemptions of $34,000 per donee for certain types of gifts, and direct payments of tuition or medical expenses don’t count toward these limits. But the law is changing. Effective in 2026, the maximum lifetime gift limit will decrease to about $12 million for a married couple.
With tax law changes coming, it will be harder to make gifts in tax-advantaged ways. This means that families with sufficient resources to make large gifts risk wasting the opportunity to move assets to the next generation without tax.
With this is mind, focus on your security first. Don’t give resources away that you may need in the future. Remember, you don’t pay the tax – your kids do. Deciding whether to give up present lifestyle to benefit your children requires careful consideration of many factors.
“CASH” IS NOT THE BEST CANDIDATE WHEN DECIDING WHAT TO GIVE AWAY
Thinking of making a gift? “Cash” is not the best candidate for gifting. Discounting techniques may allow taxpayers to reduce the taxable value of gifted assets. This is important because the same people to whom gifts are being made are likely to be the ones who would inherit at the parent’s death anyway.
Property held at death is valued as full market value. Property given away might be discounted in value. There are multiple ways of creating a “discount.” Some ways may include gifting partial interests, gifting minority interests in a business enterprise, and making the donee wait some time before enjoying the full gift. This is important to consider as estate tax rates are 40%. Every dollar of discounted value saves 40 cents in tax.
WANT EVEN MORE LEVERAGE? GIVE LIFE INSURANCE
Gifts of life insurance may leverage the gifting even more. This can be crucial because, if the gift is properly structured, only the periodic premium payments count as “gifts,” not the death benefit itself.
The death benefit will likely be much higher than the total paid for the policy. Properly structured, this excess will pass to the beneficiaries tax-free. Remember, life insurance is not available for everyone – and gets more expensive as people age. It might be important to consider insurance sooner rather than later.
Simply put, to get the most out of your tax benefits, talk to an attorney. We can evaluate property that might be suitable to tax your tax-advantaged gifting and assist in explaining the alternatives available to try to reduce taxable estate in advance of the reduction in the tax-free gift limits coming in 2026.