Estate Tax 2026: $15M Exemption Now Permanent
Estate Tax 2026: $15M Exemption Now Permanent — Planning Guide
The One Big Beautiful Bill Act eliminated the sunset that would have slashed the federal estate tax exemption in half at the end of 2025. Instead of reverting to approximately ~$7 million per person, the exemption has been made permanent at approximately $15,000,000 per individual ($30,000,000 per married couple with portability). This changes the estate planning calculus for virtually every American family: fewer than 0.1% of estates will owe federal estate tax under the permanent exemption. But state estate taxes, the generation-skipping transfer tax, and basis planning remain critical considerations.
Data Notice: Tax figures in this article reflect projected 2026 values based on IRS inflation adjustments and provisions of the One Big Beautiful Bill Act. Figures marked with ~ are estimates. Confirm all numbers with official IRS publications before filing.
The 2026 Federal Estate Tax Exemption
Current Numbers
| Parameter | 2026 Amount |
|---|---|
| Individual exemption | ~$15,060,000 |
| Married couple (with portability) | ~$30,120,000 |
| Top estate tax rate | 40% |
| Annual gift exclusion | ~$19,000 per recipient |
| Lifetime gift exemption | Same as estate exemption (~$15,060,000 unified credit) |
The exemption is indexed for inflation annually. Under the permanent provision, it will continue to increase each year with CPI adjustments rather than resetting to a lower baseline.
What “Permanent” Means
Before the One Big Beautiful Bill, the elevated exemption from the 2017 Tax Cuts and Jobs Act was scheduled to sunset on December 31, 2025. Without action, the 2026 exemption would have been approximately ~$7,000,000 per person — cutting the threshold by more than half.
Making the exemption permanent means:
- No sunset date — the ~$15M+ exemption is the new baseline
- Inflation indexing continues indefinitely
- Estate planners can build long-term strategies without fear of a future reduction
- Families below ~$30M (married) face zero federal estate tax liability
Who Still Owes Federal Estate Tax
Despite the high exemption, the 40% rate on amounts above the exemption means that very large estates still face substantial tax bills:
| Estate Value (Individual) | Taxable Amount | Federal Estate Tax |
|---|---|---|
| ~$15,000,000 | ~$0 | ~$0 |
| ~$20,000,000 | ~$5,000,000 | ~$2,000,000 |
| ~$30,000,000 | ~$15,000,000 | ~$6,000,000 |
| ~$50,000,000 | ~$35,000,000 | ~$14,000,000 |
| ~$100,000,000 | ~$85,000,000 | ~$34,000,000 |
Portability: Doubling the Exemption for Married Couples
How Portability Works
When the first spouse dies, any unused portion of their exemption can be transferred to the surviving spouse. This is called portability of the Deceased Spousal Unused Exclusion Amount (DSUE).
If the first spouse dies with a ~$5,000,000 estate and an individual exemption of ~$15,060,000, the unused ~$10,060,000 can be added to the surviving spouse’s own ~$15,060,000 exemption, giving them a total exemption of ~$25,120,000.
Critical Requirement: File Form 706
Portability is not automatic. The estate of the first spouse to die must file IRS Form 706 (United States Estate and Generation-Skipping Transfer Tax Return) to elect portability — even if no estate tax is owed. Failing to file means forfeiting the unused exemption permanently.
| Scenario | First Spouse Estate | Unused Exemption | Surviving Spouse Total Exemption |
|---|---|---|---|
| Filed Form 706 | ~$3,000,000 | ~$12,060,000 | ~$27,120,000 |
| Did NOT file 706 | ~$3,000,000 | Lost | ~$15,060,000 |
| Filed Form 706, full exemption used | ~$15,060,000 | ~$0 | ~$15,060,000 |
The IRS grants a simplified late filing process for estates that missed the deadline, but this requires action — do not assume the default election is portability.
Portability vs. Credit Shelter Trusts
Before portability was enacted (2011), married couples commonly used credit shelter trusts (also called bypass trusts or AB trusts) to preserve both spouses’ exemptions. With the permanent ~$15M exemption and portability, many families no longer need this structure.
However, credit shelter trusts still offer advantages over portability in some situations:
| Feature | Portability | Credit Shelter Trust |
|---|---|---|
| Requires Form 706 filing | Yes | No (trust is funded at death) |
| Growth sheltered from estate tax | No — DSUE does not grow with inflation | Yes — trust assets and all growth excluded |
| Protection from surviving spouse’s remarriage | No | Yes |
| State estate tax benefit | No — many states do not recognize portability | Yes — trust assets excluded from state estate |
| Creditor protection | No | Yes (properly drafted) |
For estates likely to grow significantly between the first and second death, or in states that do not recognize portability, credit shelter trusts remain relevant. Consult an estate planning professional for guidance specific to your situation.
Generation-Skipping Transfer Tax (GSTT)
What It Is
The GSTT is a separate tax (in addition to estate and gift taxes) that applies to transfers — whether by gift, bequest, or trust distribution — to beneficiaries who are two or more generations below the transferor (grandchildren, great-grandchildren, or unrelated persons more than 37.5 years younger).
2026 GSTT Exemption
The GSTT exemption is the same as the estate tax exemption: ~$15,060,000 per person. The top GSTT rate is 40%.
Without the GSTT, a wealthy family could avoid one entire generation of estate tax by leaving everything to grandchildren. The GSTT prevents this by imposing a tax equivalent to what would have been paid if the assets had passed through the skipped generation.
GSTT and Dynasty Trusts
In states that have abolished or extended the rule against perpetuities (such as South Dakota, Nevada, Delaware, and Alaska), dynasty trusts can hold assets for multiple generations without incurring estate tax at each generational transfer. The initial GSTT exemption allocation protects up to ~$15,060,000 (plus all future growth) from both estate tax and GSTT — potentially sheltering hundreds of millions of dollars over several generations.
Allocating GSTT exemption optimally at the time of trust funding is critical — once allocated, it protects all growth. Once exhausted, new transfers to the trust are exposed to the 40% GSTT.
State Estate Taxes: The Hidden Liability
States with Separate Estate Taxes
While the federal exemption is ~$15,060,000, twelve states and Washington, D.C. impose their own estate taxes with significantly lower thresholds:
| State | Exemption (Approximate 2026) | Top Rate |
|---|---|---|
| Connecticut | ~$13,610,000 (matches federal for 2026) | 12% |
| Hawaii | ~$5,490,000 | 20% |
| Illinois | ~$4,000,000 | 16% |
| Maine | ~$6,800,000 | 12% |
| Maryland | ~$5,000,000 | 16% |
| Massachusetts | ~$2,000,000 | 16% |
| Minnesota | ~$3,000,000 | 16% |
| New York | ~$7,160,000 | 16% |
| Oregon | ~$1,000,000 | 16% |
| Rhode Island | ~$1,774,583 | 16% |
| Vermont | ~$5,000,000 | 16% |
| Washington | ~$2,193,000 | 20% |
| Washington, D.C. | ~$4,528,800 | 16% |
State Inheritance Taxes
Six states impose inheritance taxes (on the recipient rather than the estate): Iowa (phasing out), Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Maryland is the only state that imposes both an estate tax and an inheritance tax.
The Massachusetts and Oregon Problem
Massachusetts ($2,000,000 exemption) and Oregon ($1,000,000 exemption) have the lowest thresholds. A Massachusetts resident with a ~$3,000,000 estate owes zero federal estate tax but could owe approximately ~$150,000 in Massachusetts estate tax. This catches many families off guard — a house worth ~$1,200,000, retirement accounts worth ~$800,000, life insurance, and other assets can easily exceed ~$2,000,000.
Planning strategies include:
- Irrevocable life insurance trusts (ILITs) to remove life insurance proceeds from the taxable estate
- Gifting during lifetime to reduce the estate below the state threshold
- Domicile planning — establishing primary residence in a state without estate tax before death (requires genuine relocation, not just an address change)
- Credit shelter trusts funded at the state exemption amount to shelter growth
Basis Step-Up at Death: The Tax Planning Powerhouse
How It Works
When assets pass through an estate at death, the cost basis is “stepped up” to the fair market value on the date of death. This means all accumulated capital gains during the decedent’s lifetime are permanently erased for income tax purposes.
The Planning Implications
| Scenario | Original Basis | Value at Death | Capital Gain Erased | Tax Saved (at ~23.8%) |
|---|---|---|---|---|
| Concentrated stock | ~$100,000 | ~$2,000,000 | ~$1,900,000 | ~$452,200 |
| Family home | ~$200,000 | ~$1,500,000 | ~$1,300,000 | ~$309,400 |
| Investment portfolio | ~$500,000 | ~$3,000,000 | ~$2,500,000 | ~$595,000 |
The step-up in basis makes holding highly appreciated assets until death one of the most effective tax strategies in the code. Selling the same assets before death would trigger capital gains tax on the full appreciation.
Community Property Double Step-Up
In community property states (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin), both halves of community property receive a stepped-up basis when one spouse dies — even the surviving spouse’s half. This is more generous than separate property states, where only the deceased spouse’s share gets the step-up.
Lifetime Gifting Strategies Under the Permanent Exemption
Annual Exclusion Gifts
Each person can gift up to ~$19,000 per recipient per year (2026) without using any lifetime exemption or filing a gift tax return. A married couple can gift ~$38,000 per recipient through gift splitting.
Annual exclusion gifts are the simplest way to reduce your taxable estate over time:
| Gift Strategy | Annual Amount Removed | 20-Year Total (2 children + 2 grandchildren) |
|---|---|---|
| Individual giving | ~$19,000 × 4 = ~$76,000/year | ~$1,520,000 |
| Couple giving (split gifts) | ~$38,000 × 4 = ~$152,000/year | ~$3,040,000 |
Plus all future growth on gifted assets occurs outside the estate.
Lifetime Exemption Gifts
With a ~$15,060,000 lifetime exemption, individuals can make substantial gifts during their lifetime. Gifts above the annual exclusion use the unified credit (reducing the amount available at death) but are reported on Form 709.
The key advantage of lifetime gifting: future appreciation on the gifted property occurs outside the estate. A gift of ~$5,000,000 in assets that doubles to ~$10,000,000 by the time of death moves ~$5,000,000 in growth out of the estate entirely.
The Tradeoff: Basis Step-Up vs. Gifting
Gifted property carries over the donor’s basis (no step-up). Inherited property gets a stepped-up basis. For highly appreciated assets, holding until death and receiving the step-up may produce greater total tax savings than gifting — even considering the estate tax.
The breakeven analysis depends on whether the estate will exceed the exemption:
- Estate below ~$15M: Hold appreciated assets for the step-up. No estate tax owed, and heirs get tax-free capital gains erasure.
- Estate above ~$15M: Gift assets that are expected to appreciate significantly, even though heirs inherit the donor’s basis. The 40% estate tax rate exceeds the ~23.8% capital gains rate.
Planning for Estates Near the Exemption Threshold
Estates in the ~$10M to ~$20M range face the most uncertainty. Planning considerations:
- Monitor the exemption annually — inflation adjustments increase it each year
- Use irrevocable trusts strategically to lock in current exemption amounts
- Consider life insurance inside an ILIT to provide liquidity for any estate tax without increasing the taxable estate
- Value discounts for family limited partnerships (FLPs) and LLCs holding illiquid assets can reduce the reportable estate value
- Charitable planning — a charitable remainder trust (CRT) or charitable lead trust (CLT) can reduce the taxable estate while providing income or fulfilling philanthropic goals
Frequently Asked Questions
Does the permanent exemption mean estate planning is no longer necessary?
No. Even without federal estate tax, you still need a will or trust to control asset distribution, guardianship designations for minor children, powers of attorney, healthcare directives, and beneficiary designations. State estate taxes may also apply at much lower thresholds. The exemption eliminates federal tax for most estates, but estate planning addresses far more than tax.
Can the permanent exemption be changed by future legislation?
Yes. Congress can modify tax law at any time. “Permanent” means there is no built-in sunset, but a future Congress could lower the exemption. However, reducing the exemption would be politically difficult and would likely include transition rules to protect existing planning.
Should I undo estate plans that were designed for the lower exemption?
Possibly. Trusts designed to minimize estate tax at a ~$7M exemption may create unnecessary complexity at a ~$15M exemption. Review your trust structure with your attorney to determine if simplification is appropriate. In particular, credit shelter trusts that are no longer needed may cause the surviving spouse to lose the step-up in basis on trust assets.
How do I calculate my taxable estate?
Your taxable estate includes all assets you own at death: real estate, investment accounts, retirement accounts (IRAs, 401(k)s), bank accounts, life insurance (if you are the owner), business interests, personal property, and any assets in revocable trusts. Subtract debts, funeral expenses, administrative costs, and any charitable bequests.
Does the Trump Account affect estate tax planning?
Trump Accounts are owned by the child, so they are not part of the parent’s or grandparent’s estate. However, contributions to a Trump Account are completed gifts for gift tax purposes and count toward the annual exclusion calculation.
Key Takeaways
- The One Big Beautiful Bill made the ~$15,060,000 per-person estate tax exemption permanent (no sunset)
- Married couples can protect up to ~$30,120,000 using portability — but only if Form 706 is filed at the first death
- State estate taxes remain a significant concern in 12 states and D.C., with exemptions as low as ~$1,000,000 (Oregon)
- The step-up in basis at death erases capital gains permanently and is one of the most valuable tax provisions in the code
- Generation-skipping transfer tax has the same ~$15,060,000 exemption; allocating it to dynasty trusts can protect multi-generational wealth
- Lifetime gifting removes future appreciation from the estate, but sacrifices the step-up in basis — the right strategy depends on estate size
Next Steps
- Consult an estate planning professional on iAdviser to review your plan under the new permanent exemption
- Review the One Big Beautiful Bill tax changes for all provisions affecting wealth transfer
- Explore capital gains tax strategies for assets you may hold until death for the step-up
- Check retirement account RMD rules — retirement accounts pass through the estate and are subject to income tax for heirs
- Review tax planning for high earners for lifetime strategies that reduce your taxable estate
Tax and estate planning information is for educational purposes only and does not constitute tax, legal, or financial advice. Estate tax laws are subject to legislative change. Consult a licensed estate planning attorney and tax professional for your specific situation.