NEWS
The federal estate tax exemption will rise to $15 million per individual in 2026, following Congress's decision to eliminate the sunset provision of the Tax Cuts and Jobs Act, which would have resulted in a significant reduction scheduled to take effect on January 1. The shift delivers substantial relief for many households while creating new considerations for families engaged in long-term wealth planning.
The exemption will rise from $13.99 million in 2025 to $15 million per individual in 2026, with married couples able to protect up to $30 million through portability. Lawmakers secured the increase under the One Big Beautiful Bill Act, reversing the prior schedule that would have cut the exemption nearly in half.
The unified estate and gift tax continues to apply a single exemption to lifetime gifts and transfers at death. This higher threshold now affects when families become subject to federal estate tax and how they structure long-term transfers. Amounts exceeding the exemption remain subject to a 40 percent rate, a figure that has been unchanged for more than a decade.
The Internal Revenue Service allows deductions that reduce the taxable estate, including charitable donations, debts, administrative costs, and transfers to surviving spouses. These deductions often result in effective tax rates that are significantly lower than the statutory level, particularly for estates with high deductible expenses.
Twelve states and the District of Columbia impose estate or inheritance taxes with significantly lower thresholds, in some cases starting at $1 million. Families with property in multiple jurisdictions must continue to evaluate how state statutes interact with federal rules. This includes attention to residency, situs of property, and differences in allowable deductions.
Annual exclusions remain a key supplement to the higher exemption. Individuals may give up to $19,000 per recipient in 2025 without using any lifetime exemption; 2026 amounts are expected to rise with inflation. These exclusions can shift future asset appreciation outside the taxable estate, especially when applied to assets with strong growth potential.
The Tax Cuts and Jobs Act of 2017 temporarily doubled the estate tax exemption, creating unusually high thresholds that will remain in effect through 2025. The law required the increase to expire at the end of that year, restoring an exemption of nearly $7 million after inflation adjustments.
As the scheduled reduction approached, families began implementing strategies to utilize the larger exemption before it was eliminated. Advisors across the country reported a growing trend of lifetime gifting, trust formations, and asset restructuring from 2023 to 2025.
Congress ultimately decided to eliminate the sunset provision in 2025, arguing that long-term planning required more predictable rules. The new legislation now makes the exemption permanent, with annual inflation adjustments continuing as before.
The unified estate and gift tax structure continues to apply a shared exemption, the generation-skipping transfer tax remains in parallel, and the marital deduction remains unlimited. These longstanding components preserve continuity in the federal wealth transfer framework.
Estate planning professionals say the higher exemption will ease concerns for families who were preparing for a sharp reduction. “This change gives households more breathing room,” one tax attorney said. “Plans built around a lower exemption should be reviewed to ensure they still function as intended.”
Analysts note that the number of estates paying federal tax was already small and is likely to shrink further. IRS data from recent years show that only a small fraction of estates owe federal estate tax, and the expanded exemption will further narrow that group.
Policy experts caution that state estate taxes continue to affect many households. “Federal changes do not eliminate state-level obligations,” an analyst focusing on multistate systems said. “Families in states with low thresholds must still plan around those rules.”
Family business advocates welcomed the increase, noting that provisions such as special-use valuation remain available for closely held businesses. Advisors emphasize, however, that valuation, liquidity planning, and succession management remain critical for larger estates that exceed the new limits.
For households with wealth between roughly $7 million and $15 million, the higher exemption reduces potential exposure that would have emerged under the original sunset schedule. These families may reconsider prior decisions regarding gifting strategies, trust structures, or asset division formulas outlined in their estate planning documents.
High-net-worth families with estates above the exemption will still face federal tax liability. Lifetime gifting, charitable donations, and specific trust structures may reduce exposure, but each option requires evaluating how the strategy affects income tax, cost basis, and control of assets.
Residents of states with estate or inheritance taxes must evaluate thresholds, definitions of taxable property, and varying rules on deductions. Families with property across multiple states should review domicile considerations and how each state treats real estate, business interests, or life insurance proceeds.
Estate planning documents created under assumptions of a lower exemption may need adjustment. Formula clauses tied to exemption levels can shift distributions differently than intended, especially when exemption amounts change significantly.
Families may benefit from calculating the projected value of their estates, including real estate, business interests, retirement accounts, and insurance benefits. Many households misjudge their exposure, leading to gaps in planning.
Existing estate documents should be reviewed and updated where appropriate. Plans created in anticipation of the sunset may rely on outdated assumptions, particularly for blended families, multistate households, or estates that hold appreciating assets.
Gifting strategies may offer flexibility for wealth transfer while preserving lifetime exemption amounts. Families may also evaluate charitable donations or the use of trust structures to meet financial and legacy goals.
Professionals emphasize that coordinated advice is essential. Estate planning intersects with tax planning, business succession, cost basis considerations, and state law, making tailored guidance necessary for achieving long-term objectives.
By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now
© 2025 Get Tax Relief Now™. All rights reserved.
