As the sun sets on the current estate tax landscape, high-net-worth individuals face a pivotal moment of decision. With the federal lifetime estate and gift tax exemption set to halve in January 2026, there has never been a more urgent time to review beneficiary designations and implement strategic planning.

By understanding the numbers, recognizing risks, and taking decisive action now, you can ensure your legacy is distributed according to your wishes and minimize avoidable tax burdens.

Understanding Current and Future Estate Tax Exemptions

Under the Tax Cuts and Jobs Act of 2017, the estate and gift tax exemption doubled, arriving at a record $13.99 million per individual for 2025. Married couples can shelter up to $27.98 million combined. However, unless Congress acts, these figures revert to roughly $7 million per person ($14 million for couples) on January 1, 2026.

This scheduled change underscores the importance of maximize use of the $13.99M exemption through completed gifts and strategic transfers before year-end. Failing to act could expose an additional $7 million to a 40% tax rate, potentially increasing your estate tax liability by up to $2.8 million.

The Importance of Reviewing Beneficiary Designations

Many assets bypass probate and transfer directly to named beneficiaries. If your forms are outdated or inconsistent with your will or trust, you risk unintended distributions.

Key assets requiring beneficiary review include:

• Retirement accounts such as IRAs and 401(k)s
• Life insurance policies and annuities
• Payable-on-death (POD) bank accounts
• Transfer-on-death (TOD) brokerage accounts

Because outdated beneficiary forms can override trust instructions, regular reviews are essential, especially after major life events like marriage, divorce, or the birth of a child.

Strategic Approaches to Maximize Tax Efficiency

With the exemption drop looming, combining gifting, trusts, and beneficiary updates creates a robust plan.

• Gifting Strategies Before 2026: Transfer up to $13.99 million now to lock in the higher exemption. Large gifts completed in 2025 remove significant value from your taxable estate.
• Annual Exclusion Gifting: Use the $19,000 per recipient exclusion this year without reducing your lifetime exemption.
• Irrevocable Trusts: Shift assets out of your estate while retaining control through features like special needs provisions or spendthrift protection.
• A-B Trusts for Married Couples: Double the exemption and preserve estate tax benefits for second marriages or blended families.

Integrating these strategies requires coordination among financial advisors, estate planning attorneys, and trusted family members to ensure beneficiary designations reflect the overall plan.

Navigating Rules for Inherited Retirement Accounts

The SECURE Act introduced the “10-Year Rule” for most non-spouse beneficiaries, requiring full distribution of inherited IRAs within ten years of the original owner’s death. This contrasts with the old stretch IRA rules that allowed distributions over a beneficiary’s lifetime.

Key considerations include:

• Heirs in lower tax brackets may receive distributions more efficiently.
• Surviving spouses retain rollover options and more flexible payout schedules.
• For accounts where the owner died after their required beginning date, minimum distributions still apply based on life expectancy.

By 10-Year Rule for inherited IRAs planning, you can tailor beneficiary designations to optimize tax timing and reduce overall income tax for heirs.

Philanthropy and Charitable Planning

Charitable giving remains a powerful way to reduce your taxable estate. Planned gifts, such as charitable remainder trusts or gifts of low-basis assets, can provide you or your heirs with income while charitable gifts reduce taxable estate size and generate valuable income tax deductions.

Consider naming a charity as a partial beneficiary on retirement accounts or designing a donor-advised fund to involve multiple generations in your philanthropic legacy.

Executor Compliance and Portability

Executors must navigate various compliance requirements to preserve tax benefits:

• Deceased Spousal Unused Exclusion Portability: A simplified filing allows the surviving spouse to claim the deceased spouse’s unused exemption, but must file Form 706 within five years of death.
• Consistent basis reporting ensures beneficiaries use the same valuations reported on the estate tax return when selling inherited assets.
• Awareness of state-level estate or inheritance taxes—some states have much lower thresholds than the federal exemption.

Proactive communication with your executor and professional advisors ensures these elections and filings occur timely, safeguarding every dollar of available exemption.

Action Checklist: Updating Beneficiaries by 2026

• Gather all beneficiary designation forms for retirement, insurance, bank, and brokerage accounts.
• Confirm primary and contingent beneficiaries reflect current wishes and circumstances.
• Coordinate gifts to leverage both lifetime and annual exclusions before December 31, 2025.
• Review trust terms and align them with updated beneficiary forms.
• Consider irrevocable trusts or A-B trusts for advanced tax planning.
• Consult your financial and legal advisors to file for DSUE portability if applicable.
• Document decisions and share summaries with your executor and heirs to avoid future conflict.

By taking these steps today, you not only secure your financial legacy but also provide peace of mind for your loved ones. With careful planning and timely updates, you can align your beneficiary designations with your broader estate tax strategy and ensure that your hard-earned wealth is distributed exactly as you intend.

Remember: proactive, organized action now can transform uncertainty into confidence, protecting your family’s future and preserving the impact of your legacy.