Estate Tax Exemption 2026: The New $15 Million Rules

The basic exclusion amount, the technical name for the exemption, is $15,000,000 per person for deaths and gifts in 2026, up from $13,990,000 in 2025. The One Big Beautiful Bill Act set the figure by statute, made it permanent, and indexed it for inflation starting in 2027. The same $15 million number also covers lifetime gifts and generation-skipping transfers, because the estate and gift tax share one unified exemption. Use part of it giving assets away during life and less remains at death.

The history matters because so much planning advice on the internet is now obsolete. The 2017 tax law doubled the exemption but wrote in a sunset: on January 1, 2026, the amount was scheduled to fall to roughly $7 million per person. Families spent 2024 and 2025 racing to make large gifts before the window closed. Then the sunset was repealed. If you made big gifts to beat a deadline that no longer exists, nothing is clawed back, but your remaining strategy deserves a fresh look.

The rate above the exemption is effectively flat. The statute lists graduated brackets from 18% to 40%, but they top out at $1 million of taxable transfers, and the exemption mechanics mean every taxable dollar of a 2026 estate lands at 40%. The arithmetic is blunt: a taxable estate $2 million over the exemption owes about $800,000.

Your gross estate is everything you own or control at death, valued at fair market value on that date, not at what you paid. Real estate, brokerage accounts, retirement accounts, your share of jointly held property, business interests, crypto, collectibles, and assets sitting in your revocable living trust all count. A revocable trust avoids probate; it does not avoid estate tax. People routinely undercount by valuing the business at book value and forgetting the next item entirely.

Life insurance is the classic blind spot. If you own a policy on your own life, the full death benefit is included in your gross estate. Not the cash value. The death benefit. A business owner with a $10 million company and a $5 million key person policy is a $15 million estate the moment both exist. The standard fix is an irrevocable life insurance trust (ILIT) that owns the policy from day one; transfer an existing policy into one and the proceeds come back into your estate if you die within three years of the transfer.

Two deductions do the heavy lifting on the way from gross estate to taxable estate. The unlimited marital deduction lets everything pass to a US citizen spouse tax free, which is why the federal estate tax is usually a second death problem for married couples. The charitable deduction is likewise unlimited. Debts, mortgages, and administration costs also come off the top.

When the first spouse dies, whatever exemption they did not use can transfer to the survivor. The transferred amount is called the DSUE, the deceased spousal unused exclusion. A couple where the first spouse dies in 2026 having used none of their exemption can leave the survivor with $15 million of DSUE on top of the survivor's own $15 million: a combined $30 million shield.

The catch is procedural, and it catches families constantly. Portability is elected on Form 706, the federal estate tax return, which is due nine months after death (a six month extension is available). Most estates under the exemption never think to file a 706 because no tax is due, and the election quietly lapses. If the survivor's assets later grow past their own exemption, the wasted DSUE becomes real money: up to $6 million of tax at a 40% rate on a full $15 million of lost exemption.

There is a safety net. For estates that were not otherwise required to file, Rev. Proc. 2022-32 allows a simplified late portability election up to five years after death. Past five years, the exemption is gone. If you lost a spouse in the last few years and nobody filed a 706, this is worth checking this month, not eventually.

Estates with these moving pieces, a business, a taxable state, a surviving spouse, are exactly what our estate planning service coordinates with your attorney: the CPA runs the numbers, the attorney drafts the documents.

The federal exemption gets the headlines, but for most families with real estates, the state is the tax that actually gets paid. Twelve states and the District of Columbia impose their own estate tax, and their thresholds sit far below $15 million. Several more levy inheritance taxes on the recipient instead. The state that matters is generally where the decedent lived, plus any state where they owned real estate.

Illinois deserves its own paragraph, because Taxstra sits in Springfield and we prepare these returns. The Illinois threshold is $4 million, it has not moved in over a decade, and it is not indexed for inflation, so ordinary appreciation drags more families over it every year. There is no portability between spouses. And the computation is unforgiving: once an estate exceeds $4 million, the tax is calculated in a way that reaches much of the estate, not just the excess. A $6 million Illinois estate, entirely ignorable federally, can owe roughly half a million dollars to the state.

The annual gift tax exclusion is $19,000 per recipient for 2026. Every gift inside that limit leaves your estate immediately, uses none of your $15 million lifetime exemption, and requires no tax return. The limit is per giver and per recipient, which is where it gets powerful: a married couple with three married children can move $19,000 × 2 givers × 6 recipients, which is $228,000, out of their estate every single year, tax free and paperwork free.

On top of the annual exclusion, payments made directly to a school for tuition or directly to a medical provider for care are excluded without any dollar limit. Grandparents paying $70,000 of college tuition straight to the university have made no taxable gift at all, and their $19,000 exclusion for that grandchild remains untouched for other gifts the same year.

At estates meaningfully above the exemption, the compounding matters more than the gift. $228,000 a year moved out of a 40% taxable estate saves roughly $91,000 of eventual estate tax per year of gifting, plus all the future growth on those dollars happens outside your estate. The full mechanics, including gift splitting, Form 709 triggers, and 529 superfunding, live on our gift tax limit guide.

One asset class needs its own plan: retirement accounts. IRAs and 401(k)s pass by beneficiary designation, outside your will, and your heirs generally must empty inherited accounts within ten years, paying ordinary income tax on every dollar. An estate plan that ignores the inherited IRA rules can hand the IRS more through income tax on the IRA than it ever saved in estate tax.

When someone inherits an asset, its cost basis resets to fair market value on the date of death. The entire lifetime of appreciation simply vanishes for income tax purposes. Stock bought for $100,000 and inherited at $2 million can be sold the next day for $2 million with zero capital gain. Gifted assets get the opposite treatment: the recipient takes the giver's original basis, and the built-in gain comes along with the gift.

This creates the central tension of modern estate planning. With a $15 million exemption, most households will never owe federal estate tax, which means the step-up is worth more than exemption planning. For them, the right move is often to hold appreciated assets until death and gift cash or high basis assets instead. Give away the recently purchased index fund; die holding the farmland bought in 1985.

The calculus flips for estates safely above $15 million (or above a state threshold), where every gifted dollar avoids 40 cents of estate tax and the capital gains cost may be the cheaper of the two. The point is that it is arithmetic, not doctrine. Where the gains math interacts with the 0%, 15%, and 20% brackets, our capital gains tax guide has the current bracket numbers.

1. Gifting appreciated assets an estate that owes no tax.

The section above in one sentence: if your estate is under the exemption, gifting low basis assets trades a 0% estate tax for a very real capital gains tax. We see this most with parents adding children to real estate deeds, which is a gift of carryover basis, made worse because it also exposes the property to the child's creditors and divorces.

2. Skipping the Form 706 because "no tax was due."

Portability dies with the filing deadline. The five year window under Rev. Proc. 2022-32 is a rescue, not a plan. For a surviving spouse who might someday have a taxable estate, filing the 706 at first death is the cheapest insurance in the tax code.

3. Planning federally and getting hit by the state.

An Illinois couple with a $7 million estate has zero federal exposure and a very real state problem. Outright-to-spouse plans waste the first $4 million Illinois shield because Illinois has no portability. The fix, usually a credit shelter trust funded at the first death, has to be in the documents before anyone dies.

4. Owning life insurance personally at exactly the wrong size.

The policy bought to pay the estate tax can be the thing that causes it. Death benefits you own are in your estate; at 40 cents on the dollar, a $5 million personally owned policy can create up to $2 million of federal tax it did not need to. ILIT ownership from the start avoids the inclusion and the three year lookback.

5. Letting an old "sunset" plan run on autopilot.

Plans built for the exemption cut that never came, SLATs funded in a hurry, gifts made purely to lock in the old number, are not wrong, but their reason expired. Assets moved into grantor trusts also gave up the step-up at death. With the exemption permanent at $15 million, some of those structures should be unwound or repurposed, and that is a numbers exercise, not a guess.