Plan for 2026’s Smaller Estate-Tax Shield—Not for Political Promises

You have less than twelve months to lock in today’s record-high federal estate-tax exemption. After December 31, 2025, the amount you can pass to loved ones free of the 40 percent estate tax is scheduled to fall by roughly half—from $13.61 million per person in 2024 to somewhere between $6 million and $7 million on January 1, 2026. Congress keeps floating ideas—re-enacting the larger “Trump-era” exemption or scrapping the tax outright—but no proposal has gained real momentum. Lawmakers let the tax lapse once, in 2010; it returned the next year. Betting your legacy on a repeat of that one-year anomaly puts your heirs at risk. A wiser move is to design a flexible estate plan that protects your family whether the exemption plunges, rebounds, or disappears only to return again.

Why the Exemption Will Shrink on January 1, 2026

The Tax Cuts and Jobs Act doubled the estate-tax exemption for 2018-2025. By statute, that increase sunsets at the end of next year, restoring the old $5 million base indexed for inflation. Put differently, every dollar of your estate above the new threshold could face a 40 percent federal tax unless you plan ahead. Colorado has no state estate tax, but families with property or relatives in taxing states (Washington, Oregon, Minnesota, and others) can face an even steeper bill.

Why You Shouldn’t Count on Congress

• Political football – Estate taxes polarize voters, so each party uses the exemption as a bargaining chip. One session may raise the limit; the next can reverse course.
• Budget pressure – Rising federal debt makes permanent repeal unlikely. Estate taxes raise a modest but politically convenient stream of revenue.
• History repeats – When the tax disappeared in 2010, families scrambled. It came back in 2011 with a $5 million exemption, climbed to 40 percent in 2013, and has shifted almost every time Congress changes hands.

Counting on repeal is like selling a safety net because the circus might remove the tightrope. Braverman Law Group encourages clients to assume the exemption shrinks and craft estate planning documents that pivot if lawmakers surprise us.

Couples: Build Choice into Your Trusts

Married Coloradans enjoy two exemptions—one per spouse—but only if the survivor claims both. Traditional “A-B” or bypass trusts automatically sheltered the first spouse’s exemption. Those older trusts still work, yet they can lock unnecessary assets in an inflexible bypass share if the exemption rises.

A disclaimer trust or other flexible marital trust solves the problem. Here is the simplified sequence:

1. At the first spouse’s passing, everything moves to the survivor outright.
2. Within nine months, the survivor decides how much to disclaim into a bypass trust that uses the deceased spouse’s exemption.
3. Assets the survivor keeps remain in the marital estate; assets disclaimed grow outside the taxable estate.

Because the decision happens after death, the survivor tailors the bypass amount to the exemption in force that year. If Congress unexpectedly lifts the limit to $14 million, the survivor can disclaim little or nothing. If the exemption tanks, the survivor can shelter the full allowable amount.

Advantages of a disclaimer-style plan include:

• Post-mortem flexibility—no guessing today what Congress will do tomorrow.
• Continued basis step-up for assets the survivor keeps, helping cut future capital-gains tax.
• Added creditor and remarriage protection for property inside the bypass trust.

Individuals: Blend Charitable Gifts with Heirlooms

Single clients do not get a second exemption, so planning tools differ. A taxpayer whose estate may exceed $6-7 million in 2026 can combine lifetime gifting and charitable strategies to trim the taxable balance.

• Annual exclusion gifts – You can give up to $18,000 per recipient (2024 limit) each year without touching your lifetime exemption. Shifting appreciating assets like business interests or growth-oriented funds removes future gains from your estate.
• Irrevocable life-insurance trusts (ILITs) – Holding life-insurance proceeds outside the estate provides liquidity for heirs to pay any tax owed, rather than selling illiquid property under time pressure.
• Charitable remainder trusts (CRTs) – A CRT lets you transfer low-basis stock or real estate to a trust, receive an income stream for life, and snag an immediate income-tax deduction. The present value of the remainder for charity leaves your estate at once.
• Donor-advised funds (DAFs) – A DAF delivers an up-front deduction while allowing you to direct gifts to favorite charities over years, keeping philanthropic control yet shrinking your taxable estate today.

Designing these tools now, while the exemption is high, moves appreciation beyond the reach of the 40 percent bite—even if lawmakers never touch the tax again.

The Countdown to December 31, 2025

Starting today, there are a few things you should keep in mind.

• Update asset values—include life insurance, business interests, and real-estate appreciation.
• Draft or revise trust documents—add disclaimer or flexibility clauses, formula funding, and reliable successor trustees.
• Run projection scenarios—model different exemption levels so you know how close you are to a potential tax.

Six to twelve months out,

• Obtain appraisals for hard-to-value assets such as closely held businesses or out-of-state property.
• Implement lifetime gifts or fund charitable vehicles early enough to avoid valuation disputes.

Last quarter of 2025,

• Finalize large gifts that rely on the higher exemption. The IRS has confirmed that gifts made before the sunset keep the benefit even after the exemption falls.
• Confirm trustees and agents so they can act quickly if the unexpected happens.

Common Questions

If I give assets away now and Congress keeps the high exemption, did I waste my shield?
No. A gift today uses your current exemption, which the IRS will not claw back. If lawmakers extend the larger amount, you still have whatever exemption remains for additional gifts or transfers at death.

Do flexible trusts trigger probate?
When properly funded, your trust avoids Colorado probate as effectively as any traditional revocable or bypass trust. Asset titling, not trust style, determines probate exposure.

Could Colorado adopt its own estate tax?
No bill is pending, and the legislature shows little appetite. Still, other states added estate taxes quickly when budgets tightened. A plan that works federally will usually outmaneuver a new state levy.

Next Steps: Build a Plan That Adapts as Fast as Congress Shifts

Waiting for Washington to settle the estate-tax debate hands control of your legacy to politicians who change course every election cycle. Crafting flexible trusts, strategic gifts, and charitable components now gives your family certainty regardless of who occupies Capitol Hill.

Braverman Law Group has guided Colorado families through estate-tax swings for more than two decades. Ouor Boulder estate planning lawyers design plans that let surviving spouses dial protection up or down and help individuals use charitable tools to keep more wealth where they want it. Schedule a strategy session today, and take command of your estate before the window narrows. Call (303) 555-0123 or fill out our secure contact form to get started.