This is probably the first of many newsletter editions talking about this.

What exactly, am I talking about?

The 2026 federal estate tax reversion.

What is that?

Great question!

Here’s the short version:
Each of us has a federal estate tax exemption of about 13 million dollars right now (i.e. you only pay tax on your assets OVER $13m);
In 2026 this amount is set to revert to the pre-2017 amount (about $6.5m).

Pretty straightforward, right?

It is, and here’s why it’s hard.

When the reversion happens, it’s a “use it or lose it” scenario, and not a “take it off the top scenario.”

What does that mean?

Let’s look at an example.

Let’s say you have assets of $13m. You see 2026 on the horizon and you don’t want to pay 40% estate tax when you die on $6.5m if it happens after 2026 (when the exemption goes from 13m to 6.5m you’ll have 6.5m exposed to estate tax liability).

You think to yourself “I’m going to tuck away $6.5m right now and then I’ll use the $6.5m that happens in 2026 when I die.”

And that thought would be amazing, if it worked.

Unfortunately, it doesn’t.

If you moved $6.5m now when you filed your gift tax return with the IRS to let them know you used some of your estate exemption, they’d note that $6.5m of your exemption was accounted for.

In 2026, when the exemption changes, you’d still have the same accounting – except instead of having used $6.5m of $13m, you’ll have used $6.5m of your $6.5m exemption,

Said another way, if you wanted to use more than $6.5m you’ll have to use it BEFORE 2026, or it’s gone.

In the scenario above the client would come out on top if they moved $8m before 2026.

They’d effectively get an extra $1.5m of exemption by moving before the deadline.

Where’s the problem come in?

You have to thread the needle between giving away to save for estate taxes and keeping enough in your control to live the life you want.

Using the estate tax exemption usually means giving up control of your assets.

That’s what makes it hard.

This is probably a good place to start for now. If you have questions, drop me an email and I’ll answer them (and incorporate them into future newsletters).

FINAL NOTE – there are solutions. We’ll be talking about them in the future too.

Have a great week!

Cheers,

Christopher Small
CMS Law Firm LLC

PS – don’t keep this estate planning stuff to yourself – you know it’s important and we LOVE referrals!