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.

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.

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.

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 step up basis at death and minimize capital gains tax for heirs.

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

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).