Two things in life are certain: death and taxes. That is why estate planning is and will remain such an important concern, especially for high-net-worth individuals.
While taxes are certain, though, federal and state tax laws are always evolving. The estate planning strategies you used years ago might not apply now—let alone five or ten years from now. Changes in estate tax laws might even unlock new generational wealth transfer strategies you can use to ensure your family’s financial comfort and security.
In particular, 2025 and 2026 are shaping up to bring some major changes to how individuals plan their estate. In this article, MHPS’s experts will explore what’s going on in the world of wealth transfer planning and provide insight for building an estate plan that can weather current and future developments of state and federal tax laws.
2025 Federal Estate Tax Changes: What to Know
First things first: Certain federal estate tax exemptions are expected to sunset at the end of 2025, which will revert exemption thresholds to pre-2018 levels and expose more of your estate to taxation.
Right now, the current federal estate tax exemption is $13.61 million per individual, which is the highest it’s ever been. On December 31, 2025, that exemption amount will be cut in half to around $7 million per individual. In addition, other policies are being proposed to reduce valuation discounts for closely held businesses, changing grantor trust rules, or limiting how Grantor Retained Annuity Trusts or dynasty trusts can be used.
On top of this, cuts to IRS personnel are reducing its enforcement capacity—which means that it could be more difficult to receive responsive support from the IRS about tax concerns in the future.
All of these potential changes to estate tax exemptions and tax policy could dramatically alter your existing family wealth transfer strategies. But as long as you are proactive, aware of changing estate laws, and flexible in your approach to wealth preservation, you can create a strategy for estate planning that changes with the times to reduce your exposure to estate taxes.
How to Minimize Estate Taxes in Changing Times
This isn’t the first time federal policies on estate taxes have spurred shifts in wealth preservation strategies. It also won’t be the last. Across generations, tax and wealth management strategies have had to evolve. This is just another one of those times. With the right strategic approach, you can ensure that your wishes are respected to the best of the law’s capabilities.
Some ways you can minimize the effects of the estate tax exemption sunset on your estate plan include:
Minimizing tax burdens using lifetime gifts and irrevocable trusts
Once you place an asset into an irrevocable trust, it is no longer part of your estate and is therefore exempt from estate taxes. If an individual places their financial assets into a Grantor Retained Annuity Trust (GRAT), they become eligible to receive a series of annuity payments that form a steady stream of income while minimizing estate tax exposure. After the last annuity payment, the remaining assets are distributed to a designated beneficiary.
Keep in mind that we may be seeing changes to what a GRAT is capable of doing as part of your estate plan. Keep your finger on the pulse of estate tax law—or, better yet, make sure to seek advice from an estate law specialist who does—if you’re interested in using a GRAT like this.
Locking in exemptions with advanced gifting through life insurance
Many wealthy families are considering gifting assets into trusts while the current exemption levels are still in effect. Many families do not realize, however, that in some circumstances life insurance can be funded into specific types of trusts as well.
This generational wealth transfer strategy creates a long-term vehicle for generational control of your wealth—one that is outside of your estate and minimizes your ongoing tax exposure—especially when used with grantor trusts or dynasty trusts. Like any other wealth transfer strategy, if this sounds like an appealing strategy to incorporate into your estate plan, make sure to talk to your financial planner to determine how feasible it might be for your circumstances.
Creating a credit shelter trust/bypass trust/family trust
Credit shelter trusts, also known as bypass trusts and family trusts, were much more popular family wealth transfer strategies prior to the 2017 law that set the tax exemption thresholds currently expected to sunset at the end of 2025. A return to the 2017 threshold (adjusted for inflation) could make these trusts more useful—and widely used—from 2026 onward. Wealthy families who previously did away with credit shelter trusts might want to consider rebuilding them.
For a high-net-worth married couple, a credit shelter trust places a portion of a spouse’s assets into a trust upon their passing. The assets in these trusts pass to the beneficiaries of the surviving spouse. The assets continue to appreciate with time while held in the trust, without being affected by estate taxes. The trade-off, though, is that the assets only receive a single step-up in cost basis after the first spouse’s passing.
Making annual tax-free gifts
Making annual gifts under the threshold for filing gift tax returns has always been a useful component of a generational wealth transfer strategy. Even if the thresholds for tax-free gifts change in the near future, as long as you stay under these thresholds, annual gifts to your beneficiaries can still help you transfer your wealth while minimizing your estate tax exposure.
Regularly meeting with estate planning advisors
Over the short term, estate tax law can be volatile, especially in years like 2018 and (potentially) 2026 where estate tax exemptions can rapidly expand or shrink. But in the long term, peaks and valleys tend to smooth out. To ensure your wishes for your estate can be executed faithfully when the need arises, you need to do two things: keep your eye on the prize in the long term and keep your estate plan flexible enough to weather short-term turbulence.
By regularly meeting with your estate plan advisors, you can keep abreast of upcoming estate tax changes, proactively make adjustments to your wealth transfer strategies, and ensure that your estate plan can achieve your ultimate goals for generational wealth transfer.
The world is constantly changing. An estate plan has to be a living, breathing thing to change with it—not something set in stone.
To meet with MHPS Law’s wealth preservation specialists about what you can do to pivot your wealth transfer planning strategies, reach out to us for a consultation today.
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