This post is adapted from a recent episode of the Scholar Financial Advising podcast. Listen here for the full discussion.
A listener asked:
“We’re considering setting up an irrevocable trust now that the estate tax exemption is supposed to sunset in 2026. If we do it this year, do we lock in the current exemption? And how should this fit into our overall gifting goals to our children and grandchildren?”
This question comes up a lot lately—and it makes sense. There’s supposedly a big shift coming in 2026, and many families want to know if they should act now to get ahead of it.
First, Some Background
The Tax Cuts and Jobs Act—the “Trump tax cuts”—temporarily increased the federal estate tax exemption. For married couples, that meant you could pass on up to $26 million without triggering estate tax.
Unless Congress extends or changes the law, that exemption will get cut roughly in half starting in 2026.
So the natural question is: Can I use that higher exemption today by moving assets into a trust?
Does Gifting Now Lock in the Higher Exemption?
Not exactly. Here’s where it gets tricky.
Let’s say the exemption drops to $13 million per couple in 2026.
- If you gift $10 million now, your exemption doesn’t get “locked in” at $26 million.
- It just means that once the limit drops, you’ll have $3 million of exemption left—not $16 million.
- To truly take advantage of the higher exemption, you’d need to gift more than the future limit—meaning above $13 million.
That’s where the real “bonus” lies. If you gift $20 million this year, you’ve effectively used $7 million more than you’ll be allowed to in 2026. And the IRS has confirmed that you won’t be penalized later for using that extra amount early.
Watch Out for a Common Misunderstanding
One thing a lot of people miss: estate tax exemptions grow with inflation.
So if you’re projecting a $30 million estate 30 years from now, that’s not necessarily over the limit. You need to ask: What is that worth in today’s dollars? It might only be $13 million today—which would fall under the current or even future exemption limits.
Make Sure It Fits Your Plan
Tax savings are great, but not at the expense of your overall goals.
Putting millions into an irrevocable trust means giving up access to that money. That can make sense for some families—but only if you’re confident it’s money you’ll never need.
The first question we always ask is: Does this strategy fit your financial plan? If it doesn’t, don’t let tax rules push you into a decision that doesn’t serve you long-term.
Bottom Line
Yes, there’s an opportunity to use the higher exemption before it drops in 2026. But to truly take advantage of it, you need to gift more than the projected future limit—and that’s a big move with big implications.
Start with your personal goals. Make sure you’re not giving away money you’ll need down the road. And don’t let the “tax tail wag the dog.”
For more perspective on estate planning and gifting strategies, listen to the full podcast episode here.