Estate & Gift Tax 2026: Exemptions and Smart Giving

What OBBBA changed (and what it didn't)

The old story: the 2017 Tax Cuts and Jobs Act had doubled the exemption from ~$5 million to ~$10 million per person (inflation-adjusted to $13.99 million by 2025), but the increase expired after 2025. Without new legislation, 2026 would have reverted to roughly half — about $7 million per person.

The new law: exemption fixed at $15,000,000 per individual for 2026, with inflation indexing resuming in 2027 (using 2025 as the base year). The generation-skipping transfer (GST) tax exemption rises to match at $15 million. Portability between spouses survives — a surviving spouse can still use the deceased spouse's unused exemption, which is how couples reach the $30 million figure. The top federal estate tax rate stays at 40%, applied only to the amount above the exemption.

What didn't change: the annual gift tax exclusion is $19,000 per recipient for 2026 — unchanged from 2025, still inflation-adjusted over time. State estate taxes are untouched — about a dozen states plus DC impose their own estate or inheritance taxes with far lower thresholds (Oregon's kicks in at just $1 million, for example). And none of this affects income tax: inherited assets still generally get a stepped-up basis to fair market value at death, which remains one of the most valuable provisions in the code.

The practical upshot: IRS data shows fewer than 0.2% of estates owe any federal estate tax at these exemption levels. For the other 99.8%, the federal estate tax is now a non-issue — but the planning around it still matters enormously, because old documents drafted for the sunset may now do things you don't want.

Who actually owes estate tax now

With a $15 million per-person exemption, the federal estate tax is a concern for roughly the top fraction of one percent of estates. But "concern" has layers:

Clearly taxable: estates (plus lifetime taxable gifts) above $15 million per individual. A $22 million estate owes 40% on roughly $7 million — about $2.8 million. Real money, real planning needed: trusts, valuation discounts, lifetime gifting, life insurance structures.

The portability trap: married couples don't get $30 million automatically. Portability requires filing an estate tax return (Form 706) for the first spouse to die, even when no tax is owed, to transfer the unused exemption. Skip that filing and the surviving spouse may have only their own $15 million. This is the single most common expensive mistake in the new regime — a paperwork failure, not a planning failure.

State-tax exposure: you can be fully exempt federally and still owe state estate tax. Massachusetts and Oregon exempt only $1–$2 million; New York's threshold is around $7–$8 million (inflation-adjusted); several states in between. If you live in one of these states, your planning threshold is the state number, not the federal one. Don't let the $15 million headline make you ignore a $1 million state cliff.

The growth problem: a $12 million estate today isn't safely under $15 million forever if it's growing at 7–8% a year. In a decade it could be $24 million. Families in the $10–$15 million range should still plan as if the exemption might matter — because for them, it might, within their lifetimes.

The annual exclusion: tax-free giving for everyone

Forget the $15 million for a moment. The provision that touches ordinary families is the annual gift tax exclusion: $19,000 per recipient per year in 2026, no lifetime limit, no tax return required.

The mechanics: you can give $19,000 to each of as many people as you like — three kids, seven grandkids, a neighbor — every year, forever, without touching your lifetime exemption or filing a gift tax return. A married couple can combine their exclusions through gift-splitting: $38,000 per recipient per year.

Watch what that compounds into. A couple with four grandchildren giving $38,000 to each grandchild annually moves $152,000 a year out of their estate, tax-free. Over 15 years, that's $2.28 million transferred — plus all the growth those assets earn in the recipients' hands rather than in the taxable estate. For families in the $10–$20 million range, disciplined annual exclusion gifting is often the entire estate plan, no fancy trusts required.

Rules that matter: the gift must be of a present interest — the recipient gets it now, not at some future date. (This is why gifts to certain trusts need special "Crummey" withdrawal provisions to qualify.) Paying someone's tuition or medical bills directly to the institution doesn't count against the exclusion at all — it's unlimited and separate. And 529 college-savings contributions can be "superfunded": five years of annual exclusions ($95,000 per individual in 2026) contributed at once, with a special election spreading it across five tax years.

Track it with the US Estate & Gift Tax Annual Exclusion Tracker — log each year's gifts per recipient so you never accidentally exceed the exclusion or lose track of lifetime exemption usage.

Smart moves under the new permanent exemption

Review pre-2026 documents now. Thousands of wills and trusts were drafted with "formula clauses" designed for the sunset — provisions that fund bypass trusts or make gifts based on the exemption amount in effect at death. With the exemption now permanently $15 million instead of sunsetting to ~$7 million, those formulas may overfund trusts, disinherit a spouse unintentionally, or trigger consequences the drafters never intended. If your documents were written in 2024–2025 with sunset language, get them reviewed.

The "use it or lose it" urgency is gone — but gifting still wins. The old panic (gift $13 million before the cliff!) is dead. But lifetime gifting remains powerful for one reason: appreciation. Assets you gift today move all their future growth out of your estate. A $5 million gift of stock that doubles to $10 million removed $10 million from your eventual estate while using only $5 million of exemption. With the exemption permanently high, you can make these gifts calmly, at good valuations, without deadline pressure.

Basis planning beats exemption planning for most families. Since 99.8% of estates owe no federal tax, the more valuable question is usually income tax: assets held until death get a stepped-up basis (heirs owe no capital gains on pre-death appreciation), while gifted assets carry your original basis. Gifting highly appreciated stock during life can cost your heirs more in capital gains tax than the estate tax you saved — which was zero. For sub-$15 million estates, "don't gift appreciated assets; let them get the step-up" is often the right call.

State planning is the new frontier. With the federal issue settled for nearly everyone, the action moved to state thresholds. If you're in Oregon, Massachusetts, New York, Illinois, or another state with its own estate tax, your planning number is $1–$8 million, not $15 million. Some families even consider relocation — though moving solely for estate tax reasons requires genuinely changing domicile, not just buying a second home.

The paperwork that actually matters

Estate planning fails more often on paperwork than on strategy. Three forms do most of the work:

Form 706 (estate tax return): file it for the first spouse to die even when no tax is owed, to claim portability of the unused exemption. The deadline is 9 months after death (plus a 6-month extension). Miss it and the surviving spouse's exemption may be permanently halved — a multi-million-dollar paperwork error.

Form 709 (gift tax return): required for any year you make taxable gifts — anything above the $19,000 annual exclusion per recipient, or gifts of future interests. Filing it doesn't mean you owe tax; it just tracks your lifetime exemption usage. Not filing when required draws penalties and, worse, leaves your exemption accounting a mess for your executor.

Crummey letters: if you gift to an irrevocable trust and want the annual exclusion to apply, beneficiaries must receive written notice of their temporary right to withdraw the contribution. No letter, no present-interest qualification, no exclusion. It's a one-page letter, and skipping it is one of the most common trust administration errors.

Beyond forms: keep a running gift ledger (dates, recipients, amounts, valuations for non-cash gifts), store trust documents where your executor can find them, and review beneficiary designations on retirement accounts and life insurance every few years — those pass outside your will and override it.