Why Outdated Estate Plans Are a Financial Risk in 2026 -- and How to Fix Yours

Over the past decade, major tax law changes and shifting family dynamics have changed how people pass their estates to their heirs. If you haven't updated your estate plans in a long time, it's the right time to review those changes and adjust your strategies accordingly.

The $15 million exemption

In 2017, the Trump Administration's Tax Cuts and Jobs Act (TCJA) increased the estate tax exemption from $5.5 million to $11.8 million per person. It also pegged that figure to inflation, so the exemption rose every year to reach $13.99 million in 2025.

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That exemption was originally set to expire this year and drop back to about $7 million. Still, the Trump Administration's One Big Beautiful Bill Act (OBBBA) set a permanent baseline exemption of $15 million for 2026, which would also be adjusted every year to account for inflation. Only estates valued at over $15 million would be subject to a laddered base tax plus 18% to 40% of the amount by which the threshold was exceeded.

So if you have less than $15 million in assets to pass on to your heirs, you no longer need to use trusts, gifts, and other complicated financial instruments to avoid the estate tax. However, this exemption -- while promoted as being "permanent" -- could still be reversed if the Democrats (who favor lower exemptions) take over the White House and Congress again.

Staggered inheritances for young adults

In the past, many children received their inheritances once they became 18 to 21 years old. However, young adults generally don't know how to handle large sums of money -- and they can easily burn through their inheritances rather than plan for the future.

To address those issues, many families place those inheritances in lifetime discretionary trusts, which distribute the assets in fixed payments every few years. Those staggered distributions can keep your children financially secure through adulthood.

Updating revocable trusts

Revocable trusts, or "living wills", are popular ways to privately manage assets and avoid probate. However, many people never update their revocable trusts to account for the latest laws, asset values, and changing family relationships. They also often forget to retitle their assets before they pass away, which renders the trust ineffective.

Forgetting about the step-up rule

If you exceed the $15 million threshold and are subject to estate taxes, then it might be tempting to gift some of your assets to your heirs while you're living to reduce that number. However, gifting highly appreciated assets (such as stocks) can backfire, leading to even higher taxes.

Let's pretend you invested $10,000 in a stock and that position is now worth $100,000. If you gift that stock to your heir today, they would have an unrealized "carryover" gain of $90,000. If they sell that stock, they would pay the full capital gains tax rate on that $90,000 profit.

But if you leave that stock in your estate and your heir inherits it upon your passing, the "step-up" rule would kick in and reset the cost basis to the stock's price on the day of your death. Therefore, if your heir immediately sells the stock, they could collect all $100,000 without needing to report a profit or paying any capital gains taxes.

So if you're in this situation, you should carefully weigh the tax benefits of avoiding the estate tax against the drawbacks of gifting highly appreciated assets exposed to capital gains taxes. If you plan to gift some assets to bring the value of your estate below $15 million, it would be smarter to give away some assets with lower tax liabilities.

Don't just set it and forget it

Most people don't like to think of their own mortality, so they usually just set up a single estate plan and forget it. However, ignoring these latest changes could be costly for your heirs -- so you should take a moment to see if you're checking off all the right boxes to secure their future.

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