For the last several years, estate planning conversations among higher net worth families centered on one date: December 31, 2025. That was when the elevated estate tax exemption created by the 2017 Tax Cuts and Jobs Act was scheduled to expire, potentially cutting the individual exemption nearly in half — from roughly $14 million back to approximately $7 million. That cliff no longer exists. The One Big Beautiful Bill Act, enacted in July 2025, permanently eliminated the sunset provision. Instead of reverting, the federal estate tax exemption increased to $15 million per individual for 202
The federal estate tax applies to estates that exceed the applicable exemption at death. The 40% tax rate applies to all assets above the threshold. Under the current framework established by the OBBBA: Tax Year Individual Married Couple **Annual Gift Federal (Coordinated) Exclusion Exemption** 2024 $13,610,000 $27,220,000 $18,000 per recipient 2025 $13,990,000 $27,980,000 $19,000 per recipient 2026 $15,000,000 $30,000,000 $19,000 per recipient Source: IRS and OBBBA legislation (signed July 2025). The 2026 exemption reflects the new permanent baseline; annual inflation indexing begins in 2027. The unified credit applies to both lifetime gifts and bequests at death. Every dollar used during life to make taxable gifts reduces the amount available to shield the estate. The two are not separate buckets — they share the same exemption.
The $15 million federal exemption provides a genuine shelter for the large majority of American households. But 'below the federal threshold' does not mean 'nothing to plan for.' Three categories of risk remain. First, estate values grow. A 65-year-old with a $5 million portfolio growing at 7% annually reaches approximately $10 million by 75 and nearly $20 million by 85. With inflation indexing, the federal exemption will also grow — but not necessarily at the same pace as the portfolio. A family comfortably below the threshold today may be above it twenty years from now. Second, state estate taxes are entirely separate and are not affected by the federal exemption increase. Seventeen states plus Washington, D.C. impose their own estate or inheritance taxes at much lower thresholds. A family in Massachusetts with a $3 million estate owes no federal estate tax — and owes substantial Massachusetts estate tax starting at $2 million. The federal exemption provides no relief from that state obligation. Third, probate costs and administrative inefficiency consume estate value regardless of whether any tax is owed. An estate that passes without a trust goes through the public probate process, which can consume 3%7% of gross estate value in fees and take 12 to 24 months to complete. A $1 million estate with 5% probate costs loses $50,000 — more than many families would owe in any tax, federal or state.
For families whose estates will exceed $15 million — or who project they will based on current growth — the 40% federal estate tax remains one of the most consequential tax events in the financial lifecycle. At $20 million, the estate tax exposure is $2 million (40% of the $5 million excess). At $25 million, it's $4 million. These are not theoretical risks for business owners, real estate holders, or long-tenured investors with concentrated appreciated positions. They are calculable, projected outcomes that respond to advance planning. The tools available — GRATs, IDGTs, spousal lifetime access trusts, annual gifting programs, and charitable strategies — all require years of setup to be most effective. A family that defers planning on the assumption the exemption is high enough today may find it insufficient when the estate has grown, the tax law has changed, or the planning window has closed due to incapacity or death.
One often-overlooked change in the OBBBA affects charitable giving strategies for higher-income taxpayers. Beginning in 2026, charitable deductions are subject to a new 0.5% AGI floor — meaning the first 0.5% of AGI generates no charitable deduction. For a retiree with $400,000 AGI, the first $2,000 of annual giving provides no tax benefit. Additionally, for taxpayers in the 37% marginal bracket, the OBBBA caps the tax benefit of itemized deductions at 35%. A $10,000 gift that would previously have reduced their federal tax bill by $3,700 now reduces it by $3,500. These changes don't eliminate the value of charitable giving — but they affect the most tax-efficient vehicles for doing it. Qualified Charitable Distributions from IRAs remain exempt from these new floors because QCDs are excluded from income entirely; the deduction limitation is irrelevant when the income never appears in the first place. **The federal cliff is gone, but the planning isn't. An estate attorney and CPA can map your current exposure across federal, state, and income tax dimensions.**
The federal estate tax exemption is 'portable' between spouses —|A $5 million estate in Oregon faces a meaningful state estate tax
IRS and OBBBA legislation (signed July 2025). The 2026 exemption