Estate and Gift Tax Exemptions in 2026: Planning for Wealthy Families

2026 Federal Estate Tax Exemption

The federal estate tax exemption determines how much wealth passes to heirs tax-free:

The 2017 Tax Cuts and Jobs Act doubled this exemption but wrote in an expiry: the doubled amount applied only to transfers made before January 1, 2026, after which it would have reverted to roughly $7 million per person. That reversion never happened. OBBBA amended §2010(c)(3) to set the basic exclusion amount at $15,000,000 for 2026 with no expiry date, and the figure is indexed for inflation from 2027 onward (Rev. Proc. 2025-32, §.41). The generation-skipping transfer tax exemption is the same $15,000,000.

Plan on $15 million per person. As with any figure set by statute, a future Congress can change it — but there is no scheduled cliff to plan around.

Who Needs Estate Tax Planning?

Most Americans don't. The median net worth is roughly $200,000. Only the top 0.1% of earners and wealth holders face federal estate tax.

However, you need estate tax planning if:

• Your net worth exceeds $15 million (individual) or $30 million (couple).
• You live in a state with its own estate tax (Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia) or inheritance tax (Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania).
• You expect substantial inheritance, stock options, or deferred compensation to push you over exemption limits.
• You own significant real estate, business interests, or concentrated stock positions.

The first step is an honest gross estate figure, and most people undercount it badly. The estate includes assets that never appear on a net worth statement: the death benefit of every life insurance policy you own, the full value of a house held with a spouse, retirement accounts, deferred compensation, and business interests at fair market value rather than book value. A couple who think of themselves as having "$9 million" often have $13 million once a $2 million policy and a private business are added. List the components individually in the net worth calculator first — including the insurance face amounts — because the number that matters here is the total transferred at death, not the number you spend from.

State Estate and Inheritance Taxes

States with their own estate or inheritance tax are:

Two things to notice. First, these are graduated schedules, not a flat rate on the excess — the headline percentage is the top marginal rate, so multiplying the amount above the exemption by 16% badly overstates most bills. Use your state's own table.

Second, New York applies a cliff. If the taxable estate exceeds 105% of the state exemption — $7,717,500 for 2026 — the exemption disappears entirely and the whole estate is taxed, not just the excess. A New York estate of $10 million therefore owes no federal tax (it is well under $15 million) but loses the state exemption completely. Estates near that line are worth planning to the dollar.

Check your state's rules; many residents and retirees strategically relocate to no-tax states (Florida, Texas) before retirement or death to avoid state estate taxes.

Portability and Married Couples

Portability is a powerful tool for married couples. When the first spouse dies, the surviving spouse can elect to carry forward (port) the unused exemption.

Example: Husband and wife, each worth $8 million (total $16 million).

Without portability:

• Husband dies. His $8 million passes to wife. No tax (unlimited marital deduction).
• Wife later dies with $16 million. Her exemption is $15 million. Tax on $1 million at 40% = $400,000 in federal estate taxes.

With portability:

• Husband dies. His $15 million exemption is unused (everything passed to his wife under the marital deduction), so the full amount ports to her.
• Wife dies with $16 million. She has her $15 million exemption plus the ported $15 million = $30 million total. Tax: $0.

Portability saves this couple $400,000. The higher the exemption goes, the fewer couples this arithmetic bites — but the election costs almost nothing to preserve, and the estate may be much larger by the second death than it is today.

To use portability, the executor files Form 706 (Estate Tax Return) for the first spouse to die, even if no tax is owed. The return is due nine months after death, extendable by six months. If the estate was not otherwise required to file, missing that deadline is not fatal: Rev. Proc. 2022-32 lets a portability-only election be made on a late return filed up to five years after death, without a private letter ruling. Do not assume the exemption is gone.

Annual Gifting Strategy

You can give up to $19,000 per recipient per year (2026) tax-free. Couples can give $38,000 per recipient per year (both spouses gift). These gifts don't count against your lifetime exemption and reduce the taxable estate.

Example: Wealthy couple with three adult children and six grandchildren.

Each year, they can give:

• $19,000 × 3 children = $57,000
• $19,000 × 6 grandchildren = $114,000
• Wife's gifts: same amounts = $57,000 + $114,000
• Total annual gifts: $342,000

Over 20 years, at a flat $19,000 exclusion, that is $6.84 million transferred to heirs, all tax-free, without reducing their lifetime exemption. The exclusion is indexed, so the real total would be higher.

Annual gifting is simple: you file Form 709 (if you gift over $19,000 to any one person in a year), but no taxes are owed as long as you stay within the annual exclusion.

Types of Trusts for Estate Tax Planning

Revocable Living Trust: You fund a trust during your life. Assets in the trust avoid probate (court process) at death, but the trust is "revocable" and considered your property for estate tax purposes. It doesn't reduce the taxable estate.

Irrevocable Life Insurance Trust (ILIT): An ILIT owns a life insurance policy on you. When you die, the policy proceeds go to the trust, but because the ILIT owns the policy (not you), the proceeds are excluded from your estate.

Example: $2 million life insurance policy. If you own it, your estate is $2 million larger for tax purposes. If an ILIT owns it, the $2 million is estate-tax-free. Two mechanics decide whether it works: the trust — not you — must be the original owner and beneficiary, and if you transfer an existing policy into the trust instead, the three-year lookback in IRC §2035 pulls the proceeds back into your estate if you die within three years of the transfer. Size the policy before you build the trust around it; the insurance needs calculator works from what the survivors actually have to replace and what the estate will owe in liquidity, which is the figure an ILIT is supposed to fund.

Charitable Remainder Trust (CRT): You fund a trust with appreciated assets. The trust sells them (tax-free). Income from the trust goes to you for life (or a term of years), then remainder goes to charity. You get an immediate charitable deduction, reduce the taxable estate, and avoid capital gains tax on the assets.

Qualified Personal Residence Trust (QPRT): You fund a trust with your home. You retain the right to live there for a specified term (e.g., 10 years). After the term, the home passes to beneficiaries. The gift is valued at a discount because you retained occupancy rights. The home doesn't appreciate in value in the estate—appreciation after the QPRT passes tax-free to heirs.

These trusts are complex. Consult an estate attorney (cost: $2,000–$5,000) to determine which fits your situation.

Dynamic Estate Planning and Tax Law Risk

For most of 2018–2025, the dominant planning risk was a known expiry date: the doubled exemption was written to lapse for transfers after 2025, and a great deal of advice was built around gifting before it did. OBBBA removed that date in July 2025. The exemption is now $15 million per person, permanent, and indexed from 2027.

What that changes for planning:

• There is no deadline. Advice that tells you to gift before a 2026 or 2027 cliff predates the law. Check the date on anything you are relying on.
• The remaining risk is ordinary legislative risk, not a scheduled event. A future Congress can lower the exemption, but nothing is currently scheduled to do so, and there is no way to time a change that has not been announced.
• Large gifts still make sense for other reasons — moving future appreciation out of the estate, funding trusts, using valuation discounts, state estate tax exposure. Those reasons did not depend on the sunset and did not go away with it.

Best practice: plan on $15 million per person, build flexibility into the plan, and review every 2–3 years and whenever Congress debates transfer tax changes.

Minimizing Tax With Strategic Distributions

If your estate will owe tax, consider:

1. Lifetime charitable giving: Donations to qualified charities reduce income and estate taxes.

2. Spousal Lifetime Access Trusts (SLATs): A complex strategy where each spouse funds an irrevocable trust for the other. The trust grows tax-free and is outside both estates.

3. Discounted partnerships: Fund a family partnership with assets (real estate, investments). Your ownership interest is valued at a discount (25%–40%) for transfer tax purposes, reducing the taxable gift/estate.

4. Generation-skipping trusts: If you're very wealthy and want to pass wealth to grandchildren without your children triggering estate tax (if they predecease), generation-skipping tax planning is complex but powerful.

5. Roth conversions: An underrated estate move. Converting a traditional IRA to a Roth shrinks the taxable estate by exactly the income tax you pay on the conversion — that tax leaves your balance sheet permanently and is not a gift, so it costs none of your $15 million exemption. It also removes a liability your heirs would otherwise inherit: a traditional IRA passes to a non-spouse beneficiary as income in respect of a decedent, fully taxable to them, and under the SECURE Act most beneficiaries must empty the account within 10 years — often during their own peak earning years. A Roth arrives with the same 10-year deadline but no tax. Model the bracket cost of converting in stages against the heirs' likely rate in the Roth conversion calculator; conversions usually make sense in the gap years between retiring and starting required minimum distributions.

International Considerations

If you or your spouse is not a U.S. citizen, your estate tax situation is different:

• U.S. citizen surviving spouse: Can use portability and full exemption.
• Non-U.S. citizen surviving spouse: Cannot use portability. Must use a QDOT (Qualified Domestic Trust) to defer tax.

Married couples with different citizenship should plan carefully.

Common Mistakes

1. No plan at all: Many wealthy people assume "it won't happen to me" and don't plan. Without a will or trust, assets go through probate, delaying distribution and increasing costs.

2. Failing to file Form 706: If your estate exceeds exemption limits and your executor doesn't file an estate tax return within 9 months, the IRS may assess unexpected taxes and penalties.

3. Not porting the exemption: If the first spouse to die doesn't file Form 706 electing portability, the surviving spouse loses the ported exemption permanently.

4. Inadequate documentation: Keep detailed records of when you purchased assets, their cost basis, and any improvements. Executors need this to establish the stepped-up basis at death and minimize capital gains tax for heirs. The step-up under IRC §1014 resets basis to the date-of-death value, which is why an heir who sells inherited shares immediately usually owes almost nothing — and why an heir who was gifted the same shares during your lifetime inherits your original basis under §1015 and can owe six figures on the same sale. The inherited stock capital gains calculator shows the difference on a specific holding, and it is often larger than the estate tax the gift was meant to avoid.

5. Ignoring state taxes: Planning for federal estate tax while overlooking state taxes can leave a significant bill unexpectedly.

FAQ

Do I owe tax on money I inherit?

Almost never at the federal level. There is no federal inheritance tax — the estate settles any federal estate tax before assets are distributed, so what reaches you is already net. Five states tax the recipient instead: Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania, and all five exempt or heavily discount transfers to a spouse and, in most cases, to children. Two exceptions catch people. Inherited retirement accounts are ordinary income to you as you withdraw them, and most non-spouse beneficiaries must empty the account within 10 years. Inherited taxable investments get a stepped-up basis, so selling shortly after death usually produces little or no capital gain.

If I give someone more than $19,000, do I owe gift tax?

No — you file a form. Exceeding the $19,000 annual exclusion means filing Form 709 for that year, and the excess reduces your $15 million lifetime exemption. Actual gift tax is owed only once cumulative taxable gifts pass that lifetime figure, which almost never happens. Two categories don't count at all: tuition paid directly to the school and medical expenses paid directly to the provider are unlimited under IRC §2503(e) and do not use the annual exclusion or the lifetime exemption. Paying a grandchild's $60,000 tuition bill directly to the university is not a gift; handing the grandchild $60,000 to pay it is.

I made large gifts before 2026 because of the sunset. Was that a mistake?

Not a penalized one. The IRS's 2019 anti-clawback regulations under §2010(c) confirmed that gifts made while the exemption was high are not retroactively taxed if it later falls, and the exemption did not fall anyway. What those gifts did cost is the basis step-up. Assets you give away during life carry your original cost basis to the recipient under IRC §1015; assets that pass at death get reset to date-of-death value under §1014. For a family now comfortably under $15 million, gifting appreciated stock may have traded an estate tax they were never going to owe for a capital gains tax their heirs now will. That is worth reviewing with your attorney, though the gift itself cannot be undone.

We're worth $20 million. Isn't portability enough, without any trusts?

Portability handles one thing well and three things not at all. It preserves the deceased spouse's unused federal exclusion (the DSUE), which is why the couple in the example above owes nothing. But the DSUE amount is frozen at the first death and never indexed for inflation afterward, while your own exemption keeps rising — over 20 years that gap can be several million dollars. The generation-skipping transfer exemption is not portable at all; if the first spouse's GST exemption is not used or preserved in a trust, it is simply lost. And most states with their own estate tax, including New York and Massachusetts, do not offer portability, so a couple in a decoupled state can owe state tax that a credit shelter trust would have avoided. At $20 million, portability plus a will is usually not the whole answer.

Sources

• Internal Revenue Service. Rev. Proc. 2025-32, §.41 (2026 basic exclusion amount and GST exemption) and §.42 (2026 annual exclusion for gifts).
• One Big Beautiful Bill Act, Public Law 119-21, signed 4 July 2025 (amending IRC §2010(c)(3)).
• Internal Revenue Service. Rev. Proc. 2022-32 (simplified five-year relief for a late portability election).
• Internal Revenue Service. "Estate and Gift Taxes." IRS.gov.
• Internal Revenue Service. Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
• Tax Foundation. "Estate and Inheritance Taxes by State" (state exemptions and rate schedules).