Strategies to offset the 2026 estate tax changes

In Arizona and other states, estate tax rates will change in 2026, reverting to pre-2018 levels. This change could have unfavorable outcomes, limiting how much money individuals and married couples can give to their heirs without paying estate taxes.

In 2023, individuals can pass on $12.92 million without paying estate taxes and married couples have a tax exemption for $25.84 million. Those amounts revert to $5 million and $10 million in 2026, or $6.08 million and $12.16 million after adjusting for inflation. Certain types of trusts can provide tax-minimizing strategies, and you may need to consider integrating these tools into your existing estate plan.

Spousal Lifetime Access Trust (SLAT)

Using a SLAT in estate planning allows each partner in a marriage to be a beneficiary of the other partner’s irrevocable trust. In a community property state like Arizona, couples can remove assets from their names by putting them into a SLAT for their spouse’s benefit.

If the trusts are identical, they can violate the reciprocal trust doctrine, so each trust must have some differences built in. SLATS should differ in details, such as the timing of gifts, standards for distributing the assets and the designated trustees and beneficiaries. A SLAT’s primary goal is to remove assets from an individual’s ownership to potentially lower estate taxes while retaining some flexibility because their spouse will receive the assets.

Special Power of Appointment Trust (SPAT)

Assets subject to a special power of appointment are no longer included in the owner’s estate, as a SPAT is irrevocable, and the assets become owned by the trust.

However, this trust allows the trust’s grantor to retain some control, even after transferring ownership of their assets. The grantor appoints a beneficiary who can direct how to distribute the assets upon the grantor’s death, providing flexibility instead of having set and unchangeable beneficiaries when setting up the trust.

Domestic Asset Protection Trust (DAPT)

A DAPT allows individuals to protect their assets from creditors and reduce the value of assets in their taxable estate. The trust is irrevocable, meaning that once the trust owner or grantor transfers in their assets, the trust has full ownership.

The grantor no longer has control of the assets except under special circumstances. This ownership change is the mechanism that lowers an individual’s estate value and potentially reduces their estate tax liability. However, some states, such as Arizona, do not allow DAPTs.

SPLATS and SPATS provide opportunities for estate tax reduction while allowing the trust grantor to maintain some control over the assets during their lifetime. A DAPT offers a potential tax reduction while protecting assets from lawsuits or creditors. These trust types offer strategies to offset the upcoming 2026 estate tax changes.