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The Upcoming Reduction in Estate Tax Exemption

Updated: May 8, 2023

This blog briefly discusses the change in the Estate Tax Exemption that is set to take place going into 2026. If you are worth north of $10 million, or expect to be at some point in the future, then it is likely you may run into the Estate Tax (40%).

If you are part of the affluent community and have over $12.06 million ($24.12 if you're married) in your estate, it's crucial to be aware of the scheduled decrease of the estate tax exemption set to take effect in 2026. In this post, we'll discuss the upcoming changes and how you can adapt your estate planning strategies accordingly. Under the Tax Cuts & Jobs Act of 2017, the estate tax exemption limit was doubled from $5.6 million to $11.2 million for singles, and double that amount for married couples. The limit has since increased as the government accounts for inflation, from $11.2 to $12.06 million. Inflation will likely continue to raise the exemption amount until 2026, but it will be subject to a 50% cut as we head into 2026.

If you are looking to protect your estate and maximize the money passed on to heirs, then life insurance is arguably the best tool available. Since the death benefit is passed on tax free, this allows you to reallocate assets that may take you above the estate tax exemption limit into a life insurance policy that you typically place outside of your estate in a trust. This enables you to strategically avoid the estate tax, which is 40% in excess of the exemption, upon death.

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