Originally published October 2015. Last updated March 2026.
If you’ve built significant wealth, estate taxes are something you can’t ignore. And right now, there’s a ticking clock.
The federal estate tax exemption is $13.99 million per person in 2025 ($27.98 million for married couples). But this number is set to drop to roughly $7 million per person on January 1, 2026, when the Tax Cuts and Jobs Act provisions sunset. That means estates that are perfectly fine today could face a 40% federal estate tax bill next year.
Kentucky adds another layer: it’s one of six states with an inheritance tax. Class A beneficiaries (spouse, children, parents, siblings) are exempt. But other heirs — nieces, nephews, friends, unmarried partners — can owe 4% to 16% depending on the amount.
Here are three strategies worth considering before the exemption drops.
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1. Make Large Gifts Now While the Exemption Is High
The gift tax and estate tax share the same lifetime exemption. Every dollar you give away during your lifetime reduces your taxable estate at death.
With the exemption at $13.99 million, you can transfer a significant amount to your children, grandchildren, or trusts right now without owing gift tax. If you’re married, you and your spouse can combine your exemptions and gift up to $27.98 million.
Once the exemption drops in 2026, those gifts are grandfathered. The IRS has confirmed it won’t “claw back” gifts made under the current higher exemption. That’s the window.
In addition to lifetime gifts, you can give up to $18,000 per recipient per year (2024) without using any of your lifetime exemption. For a married couple with three kids and six grandchildren, that’s $324,000 per year in annual exclusion gifts alone.
Action step: If your estate is between $7 million and $14 million, this is especially urgent. You’re currently below the exemption. You won’t be in 2026.
2. Use Charitable Giving Strategically
Charitable donations reduce your taxable estate and can provide income tax deductions during your lifetime.
A few approaches that work well for high earners:
- Donor-advised funds (DAFs). Make a large contribution in a single year to bunch your deduction, then distribute grants to charities over time. You get the tax benefit upfront.
- Charitable remainder trusts (CRTs). Transfer appreciated assets into a CRT. You get an income stream for a set period, then the remainder goes to charity. You avoid capital gains tax on the transfer, get a partial income tax deduction, and reduce your estate.
- Qualified charitable distributions (QCDs). If you’re 70 and a half or older, you can donate up to $105,000 directly from your IRA to a qualified charity. It counts toward your RMD but isn’t included in your taxable income.
- Gifts of appreciated stock. Donating stock that has gained value lets you avoid capital gains tax and deduct the full fair market value. The IRS allows deductions up to 30% of AGI for appreciated property gifts to public charities.
3. Consider Generation-Skipping Transfers
If your estate is large enough that it’ll be taxed when it passes to your children, and then taxed again when your children pass it to their children, generation-skipping can save your family a round of taxation.
The generation-skipping transfer (GST) tax exemption mirrors the estate tax exemption: $13.99 million per person in 2025, dropping in 2026. By transferring assets directly to grandchildren (or into a dynasty trust for their benefit), you skip one layer of estate tax entirely.
A properly structured dynasty trust can also protect those assets from creditors, divorcing spouses, and future estate taxes for multiple generations.
Important: The GST tax is in addition to any estate or gift tax, and the rate is a flat 40%. Using your GST exemption while it’s at $13.99 million is the same “use it or lose it” calculus as the estate tax exemption itself.
FAQ
When does the estate tax exemption actually change?
January 1, 2026, unless Congress acts. The exemption is projected to drop to approximately $7 million per person, adjusted for inflation.
Does Kentucky have an estate tax?
No. Kentucky has an inheritance tax, which is paid by the person receiving the assets rather than the estate itself. Spouses, children, parents, and siblings are exempt. Other beneficiaries owe 4-16%.
Can I undo a gift if the law changes?
No. Once a gift is made, it’s irrevocable. But the IRS has confirmed that gifts made under the higher exemption won’t be clawed back even after the exemption drops. That’s the whole point of acting now.
Should I be worried about estate taxes?
If your combined estate (including life insurance death benefits, real estate, retirement accounts, and business interests) is above $7 million, you should be planning now. If you’re between $7 million and $14 million, the 2026 sunset directly affects you.
The window to take advantage of the current $13.99 million exemption is closing. If you’re unsure where you stand or what strategies make sense for your situation, let’s talk.
Schedule a free 20-minute consultation.
R.L. Brown Wealth Management
106 W Vine St, Suite 300, Lexington, KY 40507
859.317.5889
