The $15 Million Estate Tax Exemption: What It Changes for Your Family in 2026

The federal estate, gift, and generation-skipping transfer tax exemption is $15,000,000 per person, or $30,000,000 for a married couple, effective January 1, 2026. The One Big Beautiful Bill Act, signed July 4, 2025, made this amount permanent, with inflation indexing after 2026; the long-feared sunset to roughly half that level is gone. Amounts above the exemption are still taxed at a top federal rate of 40 percent, and a dozen states impose their own estate or inheritance taxes at far lower thresholds. For many families the question has shifted from "how do we beat the deadline" to "what does durable planning look like now."

What did the One Big Beautiful Bill Act change?

For nearly a decade, estate planning ran on a clock. The 2017 Tax Cuts and Jobs Act doubled the exemption but scheduled it to fall back to roughly $7 million, inflation-adjusted, at the end of 2025. Families rushed to complete large gifts before the deadline, and attorneys' calendars filled accordingly.

The One Big Beautiful Bill Act (OBBBA) ended that cycle. It set the basic exclusion amount at $15,000,000 per person beginning January 1, 2026, removed the sunset entirely, and indexed the figure for inflation in years after 2026. The same amount applies to the lifetime gift tax exemption and to the generation-skipping transfer (GST) tax exemption, since the three regimes share a unified framework.

Two things did not change. The top transfer tax rate remains 40 percent on amounts above the exemption, and the rules for portability, annual exclusion gifts, and the marital and charitable deductions continue to operate as before.

Who still owes federal estate tax in 2026?

A married couple can now shield $30 million from federal transfer tax, which removes most American households from the system entirely. But "most households" is not the same as "most families with meaningful wealth." Three groups should remain attentive.

First, families whose net worth already exceeds, or will plausibly grow to exceed, the exemption. An estate is taxed on its value at death, not its value today. A $12 million estate compounding at 7 percent doubles in roughly a decade, crossing the threshold well within a normal life expectancy. Founders, owners of appreciating businesses, and holders of concentrated stock positions are especially exposed to this drift.

Second, families in states with their own estate or inheritance taxes. State thresholds start as low as $1 million, and state tax applies regardless of the federal exemption. We cover the details below.

Third, anyone treating permanence as a certainty. "Permanent" in tax legislation means only that no expiration date is written into the statute. A future Congress can change the law, and exemption levels have moved repeatedly over the past 25 years. Planning that works at multiple exemption levels is more robust than planning that assumes today's number lasts forever.

How does the exemption actually work?

The exemption is unified across lifetime gifts and transfers at death. Taxable gifts made during life reduce the amount remaining to shelter your estate. If you give $6 million to children in 2026, your remaining exclusion is $9 million, plus future inflation adjustments.

Several transfers never touch the exemption at all. In 2026 you can give $19,000 per recipient per year under the annual exclusion, or $38,000 for a married couple electing gift splitting, according to IRS inflation adjustments for 2026. Direct payments of tuition to a school or medical expenses to a provider are unlimited and exemption-free under Section 2503(e). Transfers to a U.S. citizen spouse and to qualified charities are fully deductible.

Portability lets a surviving spouse inherit the deceased spouse's unused exemption, but only if the executor files a federal estate tax return (Form 706) on time, even when no tax is due. Skipping that filing is one of the most common and expensive errors in otherwise simple estates. Note that portability applies to the estate and gift exemption but not to the GST exemption, which is a separate consideration for multigenerational trusts.

Why do state estate taxes now matter more than the federal tax?

With the federal threshold at $15 million, state-level taxes have become the binding constraint for many families. Twelve states and the District of Columbia impose an estate tax, and a handful of others levy inheritance taxes on recipients. State exemptions are dramatically lower than the federal figure, and none of these states matches the federal $15 million.

A few examples as of 2026: Oregon's exemption is $1 million, Massachusetts exempts $2 million, Minnesota $3 million, and Illinois $4 million with no portability between spouses. Washington applies its tax above roughly $3 million, with rates the legislature has revised twice since 2025. New York exempts approximately $7.35 million but uses a "cliff" structure under which an estate moderately above the threshold can lose the benefit of the exemption entirely.

Wisconsin imposes no state estate tax and no inheritance tax, which simplifies matters for many of the families we serve from Madison. Families with homes in multiple states should still be careful. A vacation property in a taxing state can pull part of an estate into that state's regime, real estate is generally taxable where it sits no matter where you live, and domicile disputes between states are fact-intensive and unpleasant. Holding out-of-state property through an entity is one planning response worth discussing with counsel.

Should you still make large gifts now that the exemption is permanent?

For many families, yes, though with less urgency and more deliberation than the 2025 deadline allowed. The core logic of lifetime gifting survives the OBBBA: assets given away today remove all future appreciation from your taxable estate.

Consider a hypothetical example. A 60-year-old founder gives $15 million of company interests to a trust for her children in 2026, using her full exemption. If those interests grow at 7 percent annually, they are worth roughly $58 million when she dies 20 years later. The $43 million of growth occurs outside her estate. Had she kept the assets, that growth would face federal estate tax at 40 percent, roughly $17 million of additional tax, before considering any state tax. The gift itself triggered no tax; it simply used exemption she already had.

The counterweight is income tax basis. Assets transferred at death generally receive a step-up in basis to date-of-death value, erasing built-in capital gains, while gifted assets carry over the donor's basis. For low-basis assets in an estate safely below $15 million, holding until death may beat gifting. Above the exemption, the 40 percent estate tax usually outweighs the capital gains cost, but the comparison should be modeled, not assumed.

Which strategies fit the new environment?

With permanence, structures that reward patience have regained ground relative to deadline-driven gifts. Common tools include:

• Spousal lifetime access trusts (SLATs): one spouse gifts assets to a trust benefiting the other, moving assets out of the estate while preserving indirect household access.
• Grantor retained annuity trusts (GRATs): transfer the upside of appreciating assets at little or no gift tax cost, useful for those who want to preserve exemption.
• Sales to intentionally defective grantor trusts (IDGTs): freeze the value of a business interest in the estate while shifting growth to heirs.
• Dynasty trusts with GST exemption allocated: shelter assets from transfer tax for multiple generations, now with $15 million of GST exemption per person to allocate.
• Charitable vehicles: charitable remainder trusts, charitable lead trusts, and donor-advised funds reduce the taxable estate while funding philanthropic goals.

We discuss these structures in depth in our companion article on GRATs, SLATs, IDGTs, and dynasty trusts.

What if your estate is between $5 million and $15 million?

If your estate sits comfortably under the federal exemption, your planning priorities shift rather than disappear. Income tax planning, including positioning low-basis assets for the step-up at death, often matters more than transfer tax avoidance. State estate tax exposure, asset protection, beneficiary designations, and the governance terms of your trusts deserve the attention that federal estate tax used to monopolize.

Growth still warrants monitoring. A liquidity event, an inheritance, or a strong decade in the markets can move a family across the threshold faster than expected. Modeling estate values under several growth scenarios as part of regular plan reviews means the conversation happens before the exposure arrives, not after.

There is also a documents problem hiding in older plans. Many estate plans drafted in earlier eras use formula clauses that fund a trust with "the maximum amount that can pass free of federal estate tax." At a $15 million exemption, such a formula can overfund a bypass trust and unintentionally shortchange a surviving spouse. Plans written before 2026 deserve a fresh read for this reason alone.

How is the federal estate tax actually calculated?

The mechanics matter because they shape strategy. At death, the gross estate includes essentially everything you own or control: investment accounts, retirement plans, business interests, real estate, personal property, and the death benefit of life insurance you own on your own life. That last item surprises many families; a $5 million policy owned personally is $5 million of estate inclusion, which is why irrevocable life insurance trusts remain common even at the higher exemption.

From the gross estate, the law subtracts debts, administration expenses, and the unlimited marital and charitable deductions. Lifetime taxable gifts are added back so the exemption applies once across life and death. Whatever exceeds the remaining exemption is taxed at rates that reach 40 percent almost immediately, so it is reasonable to treat 40 percent as the effective marginal rate on every dollar above the threshold.

A second hypothetical illustrates the stakes. A widow dies in 2026 with a $22 million estate and no portability election from her late husband because no Form 706 was filed at his death. Her exemption shelters $15 million; the remaining $7 million generates roughly $2.8 million of federal tax. Had the portability return been filed, his unused exemption could have sheltered the entire estate. One missed filing, made years earlier, became a seven-figure cost.

Key numbers for 2026

Frequently asked questions

Is the $15 million exemption really permanent?The OBBBA contains no sunset, so the exemption does not expire on its own. A future Congress could still amend the law, which is why flexible planning remains prudent.

Does the exemption grow each year?Yes. The $15 million figure is indexed for inflation for years after 2026, so it will rise gradually over time.

If I used my exemption with gifts before 2026, do I get the new amount?Prior gifts count against your lifetime total, but the increase creates fresh capacity. Someone who gave $13 million before 2026 has roughly $2 million of additional exemption available in 2026, plus future indexing.

Do I still need to file an estate tax return if no tax is due?Often, yes. Filing Form 706 is required to elect portability of a deceased spouse's unused exemption, and missing it can forfeit millions of dollars of future shelter.

Does the $15 million exemption protect me from state estate tax?No. State estate and inheritance taxes apply under their own thresholds, some as low as $1 million, regardless of federal law.

Is gifting still worthwhile without a sunset deadline?Frequently, yes. Lifetime gifts remove future appreciation from your estate, which can matter more than the exemption amount itself, though the loss of basis step-up should be weighed for low-basis assets.