IRS ANNOUNCES INCREASED GIFT AND ESTATE TAX EXEMPTION AMOUNTS FOR 2026

The IRS has announced increased gift and estate tax exemption amounts for 2026. 

Episode Transcript

Speaker 1 (00:33):
Welcome afternoon, Michiganers, and welcome back to Tuesday with Tom,
Michigan's Only podcast, where we talk about estate planning, a
state settlement, and everything in between. As always, I'm your host,
Tom Doyle, a state planning attorney, lifelong Michigan resident, an
ambassador for all things good in this great state of Michigan. Welcome,

(00:59):
Welcome to today's program. Will recap last episode the pending
phase out of the US penny. If you haven't heard
about it, listen to last week's episode. But if you've
heard about it, you know that the US stopped minting pennies.

(01:20):
So I talked about that in last week's episodes. What
that means for you in going forward with spending your money.
Today's show, well, twenty twenty six is right around the corner,
so it's time to talk about the I r s's
announcement of increase gift and the state tax exemption amounts

(01:43):
for twenty twenty six.

Speaker 2 (01:46):
But please remember what I'm about.

Speaker 1 (01:48):
To discuss is meant to be educational and informative. It
is not legal or tax advice. Every person's situation is different,
so be sure to talk to your attorney and tax
advisor to determine what is appropriate for you and your
estate plan and tax planning. IRS announces increase gift and

(02:23):
estate tax exemption amounts for twenty twenty six. It's that
time of year the IRS starts telling us what some
of the tax considerations are going to be next year.

Speaker 2 (02:35):
So let's start with the.

Speaker 1 (02:37):
Annual gift tax exclusion. Each year, the IRS sets the
annual gift tax exclusion amount, which is that amount that
a tax payer can give per person without any gift
tax consideration. So in twenty twenty six, that number is

(03:03):
going to stay the same as it was this year
twenty twenty five, at nineteen thousand dollars per person that
you want to make gifts.

Speaker 2 (03:15):
Two.

Speaker 1 (03:17):
If you're married. Married couples can double that amount. It'll
still be nineteen thousand dollars per individual. But obviously double
that amount is thirty eight thousand dollars. So you and
your spouse, let's say that you've got three kids, five grandkids.

Speaker 2 (03:37):
Let's just do the math.

Speaker 1 (03:38):
You could actually transfer three hundred and four thousand dollars
in twenty twenty six to your children and five grandchildren
without touching the overall estate gift and federal estate tax
exemption amount. Obviously, what that means is you could potentially

(04:03):
transfer substantial assets gift tax free.

Speaker 2 (04:07):
So if you're.

Speaker 1 (04:07):
In a situation with a high value of state and
you're considering gifting as a strategy, which is sometimes used
for the purpose of reducing the size of the estate,
consider those gift tax exemption amounts. Or if you're not
even in a federal state tax issue, but you're concerned about, hey,

(04:31):
how much can I give somebody in twenty twenty six
without having to worry about filing a gift tax return, Well,
that amount's going to stay the same nineteen thousand dollars
per person to that you're making the gifts to which
a married couple can double it. Remember too, though, if
you are that high value of state, you can also

(04:53):
consider front loading a five twenty nine plan. I've had
other episodes of Tuesday with Tom where I've talked about
twenty nine plans what they are. It's basically setting money
aside to pay for educational expenses. But in twenty twenty six,
just as in the past, you can actually front load

(05:14):
a five to twenty nine plan with five years worth
of gifts. So if you're going to set up a
five to twenty nine plan in twenty twenty six. Let's
say for a grandchild, you could front load it with
five years worth of gifts, So that would be a
single person could front load it up to ninety five
thousand dollars, or a married couple could contribute up to

(05:37):
one hundred and ninety thousand dollars for that grandchild's five
twenty nine. So it's another way of using gifts that
are not taxable in order to shrink the size of
the estate and transfer assets out of the estate. So
if that's something that you're thinking about five twenty nine
plans and you're in a high value estate, consider talking

(06:01):
to your tax advisor about that being a strategy. Something
important to remember, though, gifts to non US citizens spouses
are going to be treated differently. Generally, Generally, spouses who
are both US citizens can transfer unlimited amounts to each other.

(06:23):
So when we talk about this nineteen thousand dollars gift
exemption amount, we're not talking about gifts to spouses. US
citizens can transfer an unlimited amount of their estate to
each other without incurring any gift taxes or without using
up the federal state tax amount. Any amount, though that

(06:51):
would be transferred to a spouse without depending upon what
your tax planning, might well be taxed at the death
of the SIVI spouse once we use up the federal
state tax exemption.

Speaker 2 (07:04):
Amount we're going to talk about that in a minute.
But gives to non.

Speaker 1 (07:10):
US citizens spouses though are limited. Why because a US
citizens spouse might not be subject to US of state tax,
they might take the assets out of the US and
when they die, there's not going to be a federal
estate tax that's going to be collected. So the law
puts restrictions on how much can be transferred to a

(07:33):
non US citizen spouse.

Speaker 2 (07:38):
And when the reception is not a usit and spouse.

Speaker 1 (07:43):
Regardless of whether the non US citizen's spouse is a
resident or non resident in the United States, there is
still this annual limitation amount, and so in twenty twenty six,
the amount that can be transferred to a non US
citizen's spouse is limited to one hundred and ninety four

(08:03):
thousand dollars. Obviously, that can be dramatically different than if
you're talking about an unlimited amount being given to a
US spouse.

Speaker 2 (08:13):
So if you're if you've.

Speaker 1 (08:15):
Got a non US spouse, your limitation is going to
be in twenty twenty six transferring one hundred and ninety
four thousand dollars to that non US spouse, well, how
without having to worry about gift taxes being paid.

Speaker 2 (08:33):
So that's the gift part.

Speaker 1 (08:35):
You can make gifts and in twenty twenty six, ohs
of the going to be the numbers that you have
to work within gifts.

Speaker 2 (08:42):
The other piece of the puzzle.

Speaker 1 (08:44):
Though, is the federal what we consider generally the federal
estate tax exemption amount, and that is the amount that
you can have in your estate when you die before
you have to worry about having a federal estate tax

(09:07):
paid on that amount. So under the One Big Beautiful
Bill Act that was passed, that lifetime federal estate tax
exemption amount is in twenty twenty six fifteen million dollars
in twenty twenty seven, and going forward that amount will

(09:29):
be increased by an inflation factor. And unlike what we
were dealing with most recently, under the One Big, Big
Beautiful Bill Act, that fifteen million dollars is now the
set threshold amount, meaning it's not scheduled to sunset like
was potentially going to happen in twenty fifteen, So that

(09:51):
means a single person you die in twenty twenty six,
you don't have to worry about federal estate taxes unless
you're estate is more than fifteen million dollars. Now, one
also has to consider, though, that it is a lifetime
exemption amount. So think about you've got this coupon for

(10:12):
fifteen million dollars. If you during your lifetime made taxable gifts,
those would be gifts that exceeded the annual exemption amount
for gifts. Those amounts will have to be subtracted from
that fifteen million available to you at the time of

(10:33):
your death to determine what's actually going to be due
to the Feds.

Speaker 2 (10:39):
But fifteen million.

Speaker 1 (10:41):
Dollars per person, what does that mean for married US
couple US citizens? You can double that essentially, and we
generally talk about as married US citizens are going to
have a thirty million dollar estate tax exemption amount that

(11:01):
we can start working with in twenty twenty six. Again,
that thirty million dollars will be reduced if gifts have
been made during your lifetime that exceeded that annual gift
exemption amount that we just talked about. So you've got

(11:22):
this thirty million dollars for a married couple. Portability that
I've talked about in previous episodes is the concept that says, hey,
if when the first spouse dies, their estate is not
worth fifteen million dollars, Let's say the first spouse dies
in their estate's only worth.

Speaker 2 (11:43):
Five million dollars.

Speaker 1 (11:44):
Well, under this concept of portability, that unused ten million
dollars can be transferred to their US spouse, so that
US spouse now has their own fifteen million million dollars
and in this situation the additional ten from their deceased spouse.

(12:07):
So portability is what really allows a married couple US
citizens to essentially have between the two of them thirty
million dollars between the two of them. Four purposes of
federal estate tax exemption amount before we have to worry
about any federal estate taxes. Now. An important consideration, though,

(12:30):
is this Normally in the normal world, when we're not
looking at portability, a federal estate tax return only has
to be filed if your estate exceeds that lifetime exemption amount.

Speaker 2 (12:49):
What does that mean?

Speaker 1 (12:50):
So for an individual, let's say you have not made
any gifts during your lifetime, that exceeded that annual amount,
so you've got this entire fifteen million dollars coupon available
to you at the time of your death. In the
normal world, if you only had an estate of five
million dollars when you died in twenty twenty six, we

(13:12):
would not file a federal estate tax return because there's.

Speaker 2 (13:15):
No tax due.

Speaker 1 (13:17):
We would not file a federal estate tax return unless
your estate exceeded that fifteen million dollars. But if you
want to take advantage of portability, meaning you want to
transfer to your surviving spouse the unused portion of your coupon,

(13:37):
in that case, a estate tax return will have to
be filed for you in order to transfer your unused
exclusion amount to your surviving spouse. So when when a
spouse dies, very important planning to look at and say,

(14:02):
are you going to have a federal estate tax return
filed even though there's no federal state tax do And
that gets in the whole discussion of do you want
to pass on to your surviving spouse the unused.

Speaker 2 (14:18):
Portion of your federal state tax return. Well, think about this.

Speaker 1 (14:21):
Let's just take as an example, young couple, Okay, and
oftentimes let's just say you know, somebody has just come
out of medical school, medical school.

Speaker 2 (14:32):
Just take that as an example.

Speaker 1 (14:33):
One of the spouses just come out of medical school
and they don't really have much yet other than perhaps
a lot of debt for having gone to medical school.
But that spouse who one of them dies, the surviving
spouse might, if they're the physician, might have a substantial

(14:54):
capacity to develop an increase and have a very sizable
estate at some later point in time. So in that situation,
even though the spouse who died first really has little
if anything by way of an estate, it might be
appropriate long term planning to still have a federal state

(15:18):
tax return prepared for that spouse so they can pass
on that exemption amount to the surviving spouse, who might
well need to be using it down the road at
the time of their deaths. So portability is an important
consideration that has to be has to be looked at

(15:38):
in every situation when a spouse passes away. So in
summary twenty twenty six, you can give up to nineteen
thousand dollars per recipient married couple. That's thirty eight thousand dollars. Again,
you could increase that by front loading to a five

(15:59):
nine plan. If you're going to do that, gifts to
non US spouses are going to be limited to the
one hundred and ninety four thousand dollars, not the unlimited
amount that is otherwise available to US citizen spouses. And
the lifetime federal state tax gift exemption will be at

(16:19):
fifteen million dollars in twenty twenty six twice that is
thirty million for a married couple, and considering that concept
of using portability, that essentially means between the married couple,
there can be a thirty million dollars worth of a
state that we don't have to worry about if upon

(16:41):
death the federal estate the estates don't exceed that thirty
million dollar amount. Well. As always, though, Amanda and I

(17:11):
would be honored to help you protect the people that
you love, whether that means creating a new estate plan
for me, for you, or perhaps updating in a state
plan that you already have, discussing some of these tax
issues that we've already talked about. Now, we're not tax attorneys,
but we could have discussions with you and work with

(17:33):
your tax advisor to the extent that legal assistance was
needed in doing that, or maybe you're handling the estate
for a loved one who's recently died, and you're looking
for some assistance in guiding you through the estate settlement
process during what is going to be a very difficult.

Speaker 2 (17:53):
Time for you.

Speaker 1 (17:54):
Will we try to make everything as easy and convenient
as possible to get started. We can offer you an
in person appointment that can either be in ground Rapids
or our lancing location. We offer wherever you happen to
be in the state of Michigan, virtual consultations. Those can

(18:14):
be by zoom or phone. So wherever you happen to
be in the state of Michigan, we should be able
to be of assistance to you. We've got any number
of clients throughout the entire state of Michigan. Remember two,
If all you're looking for is one document, maybe you're
looking and saying all I need is an updated, durable

(18:36):
power of attorney. Well, we offer through our legal Store
the ability to order individual documents that can be prepared
and delivered to you electronic. Now all of that, how
to schedule an in person consultation or virtual consultation or
the legal store that I've just talked about, those are

(18:58):
all available through our website, which is DOYLELOWPC dot com.
So I encourage you go to DOYLELOFPC dot com today
where you can learn more about how to schedule your
consultation and have us set up to be.

Speaker 2 (19:17):
Working with you.

Speaker 1 (19:30):
Well, taxes are never fun to talk about, so I
think that's going to be a wrap for today's show.
As always, though, if you have a comment about the program,
a question you're like answered, or a topic that you'd
like to have me cover in future episodes, head on
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(19:52):
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(20:37):
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(21:18):
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Speaker 2 (21:28):
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Speaker 1 (21:32):
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