Estate Taxes in 2026: How Families Can Reduce Tax Burden

The beginning of a new year means new estate and gift tax figures from the IRS . While there has been much uncertainty over the last few years regarding the estate and gift tax exemptions post-2025, the One Big Beautiful Bill Act passed in 2025 has given some certainty to the federal estate tax system, at least for the near term .

The OBBBA, signed into law on July 4, 2025, made permanent the higher exemption amounts and increased them effective January 1, 2026 . While the extension provides continuity, it does not eliminate the need for proactive planning. Many families must address meaningful transfer-tax exposure, particularly as asset values appreciate and, in some states, death taxes apply at lower thresholds .

The One Big Beautiful Bill Act: $15 Million Exemption

The unified estate and gift tax exemption is permanently increased to:

$15M

per individual

$30M

married couple

40%

tax rate above exemption

The $15 million exemption for 2026 is indexed for inflation beginning in 2027, with no automatic sunset . However, Congress retains the ability to amend these amounts in the future, so careful planning and monitoring of proposed law changes remains essential .

Step‑up in basis preserved: The Bill did not eliminate "step‑up" in income tax basis available at death. Thus, assets owned by a decedent at death receive a step‑up to date‑of‑death fair market values—beneficiaries have no capital gains tax on pre‑death appreciation .

For many clients, federal estate tax is no longer the primary concern regarding planning. Rather, we are observing increased focus on control, asset protection, liquidity, and family governance, particularly where wealth is concentrated in illiquid assets such as a family business.

— National Law Review, February 2026

State‑Level Estate Taxes: Where the Real Risk Lies

While the federal exemption is at an all‑time high, many states maintain their own estate tax regimes with much lower thresholds. OBBBA did not affect state death taxes, many of which apply at substantially lower exemption levels .

Massachusetts

$2M

0.8–16%

Minnesota

$3M

13–16%

No portability

New York

$7.35M

3.06–16%

Cliff: estates >105% lose benefit

Oregon

$1M

10–16%

Connecticut

$15M

12%

Matches federal

Maryland

$5M

0.8–16%

Inheritance tax also applies

Portability is not automatic, and does not apply to state taxes. A timely filed federal estate tax return is required to elect portability, even if no federal estate tax is otherwise due . Minnesota's estate tax exemption is not portable—meaning the unused portion of a deceased spouse's $3,000,000 does not automatically transfer to the surviving spouse .

Gifting Strategies: Transfer Wealth Tax‑Free

$19,000

Annual gift tax exclusion (unchanged from 2025)

A couple with 3 children: $38,000 per child = $114,000/year tax‑free

Assuming 7.5% growth, $2.28M transferred over 20 years, plus $3M+ appreciation

529 Plans

Contribute 5 years' worth in one year (requires gift tax return)

Expanded K‑12 expenses: books, curriculum, testing fees, therapies for students with disabilities

Tax‑free withdrawal limit for K‑12: $20,000/year; unused funds can roll to Roth IRA (lifetime limit $35,000)

Direct Payments

Tuition and medical expenses paid directly to providers – no gift tax, no annual exclusion used

Special rule for non‑citizen spouses:

$194,000

annual gift tax exclusion for 2026 (increased from $190,000)

Advanced Trust Strategies to Reduce Tax Burden

Spousal Lifetime Access Trust (SLAT)

Irrevocable trusts created by one spouse primarily for the other spouse, utilizing the gifting spouse's lifetime exemption and freezing the value of gifted assets .

Access Indirect via spouse

Benefit Future appreciation outside estate

Married clients should consider creating one or more SLATs—often drafted to be dynasty trusts upon the death of the beneficiary spouse .

Substitution powers allow swapping assets to optimize step‑up in basis at death .

Dynasty Trust

Designed to last multiple generations, avoiding estate taxes each time and protecting assets from creditors, divorce, and spendthrift heirs .

Duration Multiple generations

Key benefit Avoids estate taxes at each generation

These trusts can make payments to intermediate beneficiaries while reserving the bulk of the assets to be retained indefinitely without estate taxes .

Grantor Retained Annuity Trust (GRAT)

Allows a settlor to make an irrevocable gift to a trust and retain the right to receive back assets based on the initial value over a period, conveying most post‑gift appreciation gift‑tax free .

Term Typically 2+ years

When the Section 7520 rate decreases, refinancing an existing GRAT can improve efficiency by lowering the hurdle rate .

Irrevocable Life Insurance Trust (ILIT)

Owns a life insurance policy, removing the death benefit from the insured's estate .

The death benefit payout would be considered part of the insured's estate—unless the policy is purchased by an independent trustee and held in an ILIT .

Intentionally Defective Grantor Trust (IDGT)

A trust where the grantor pays income tax on trust earnings, effectively making additional tax‑free gifts to beneficiaries while reducing the grantor's estate .

Income tax Paid by grantor

Estate Reduced by tax payments

By having the grantor pay the income tax instead of the trust, the assets inside the trust continue to grow, while the grantor reduces the size of their taxable estate by the amount of tax paid .

Qualified Small Business Stock (QSBS) – New Opportunities in 2026

The OBBBA made significant expansions to Section 1202 qualified small business stock benefits effective in 2026 .

3 years

Holding period shortened from 5 years

Previously 5 years

$15 million

Capital gain exclusion increased

Previously $10 million

$75 million

Gross asset limit increased (indexed for inflation)

Previously $50 million

Multiple non-grantor trusts may be used to take advantage of the gain exclusion on a per-trust basis, provided the primary beneficiary of each trust is different . Each trust for the benefit of a separate primary beneficiary is eligible for a gain exclusion of up to the greater of 10 times basis or $15 million.

SALT Deduction Cap: A Game‑Changer for High‑Income Families

The OBBBA raised the cap on the deduction for state and local taxes (SALT) to :

AGI ≤ $500K

$40,000

Full deduction

$500K–$600K

Phases down

Reduced by 30% of income over $500K

AGI ≥ $600K

$10,000

Returns to old cap

The increased cap applies for taxable years 2025 through 2029, with annual 1% increases, and then reverts to $10,000 in 2030 .

Non-grantor trusts are eligible for their own $40,000 cap separate from the grantor. Additional non-grantor trusts may be used to take advantage of the cap on a per-trust basis, provided the primary beneficiary of each trust is different .

— EisnerAmper, 2026

New Charitable Giving Rules: Strategic Timing Required

The OBBBA introduced several charitable giving rule changes effective in 2026 .

Above‑the‑line deduction

$1,000 / $2,000

For non‑itemizers (single/joint) – cash gifts to public charities

AGI floor (itemizers)

0.5%

Only contributions exceeding 0.5% of AGI deductible

35% cap for top bracket

For taxpayers in 37% bracket, deduction benefit capped at 35%

Consider combining charitable "bunching" of Donor‑Advised Fund contributions with the new SALT cap to maximize itemization efficiency .

Qualified Charitable Distributions (QCDs): For taxpayers age 70½ and older, the QCD limit increased to $115,000 (from $108,000) .

Basis Planning: When to Keep Assets in Your Estate

With the federal estate tax rate of 40% vs. a maximum federal capital gains tax rate of 23.8% (including the net investment income tax), the trade-off of losing the basis step-up can be significantly outweighed by the estate tax savings. If estate tax isn't a concern, it may be more beneficial to leave assets in the estate until death .

Upstream planning: Taxpayers may gift property to a parent who holds the assets until their death. The original owner will inherit those same assets upon the parent's death. If the parent owned those assets for more than one year, the basis is adjusted to the date of death value, eliminating capital gains tax .

Year‑End Estate Tax Planning Checkpoints

Review Estate Planning Documents

Confirm formula clauses still function as intended under the increased $15M exemption .

Reassess Projected Estate Values

Particularly for appreciating or illiquid assets .

Annual Exclusion Gifts

$19,000 per recipient – must be made by Dec 31, 2026 .

Deadline: Dec 31

Review Prior Gifting Strategies

Check for administrative efficiency and continued suitability .

Review Beneficiary Designations

Life insurance, retirement accounts .

Evaluate Liquidity Planning

Insurance and other strategies for estates near state thresholds .

Your 2026 Estate Tax Action Timeline

January–March

Review 2025 gifts, plan 2026 gifting strategy. Check if prior gifts exceeded annual exclusion.

April–June

Schedule estate plan review with attorney and tax advisor. Assess SLATs, dynasty trusts, QSBS opportunities.

July–September

Implement new trusts, fund existing trusts, execute gifts requiring advance planning (e.g., 529 front‑loading).

October–December

Make annual exclusion gifts before Dec 31. Review beneficiary designations. Update documents if life events occurred.

Annual gifts due Dec 31

When to Seek Professional Guidance

The estate planning landscape for families with $5 million, $50 million, or more, has never been more complex—or more consequential. You should consult an experienced estate planning attorney if :

You have a net worth exceeding your state's estate tax threshold (often much lower than federal)
You own closely held businesses or qualified small business stock
You want to set up advanced trust structures (SLATs, dynasty trusts, IDGTs, GRATs, ILITs)
You have assets in multiple states or internationally
You are concerned about potential future legislation affecting exemptions
Your documents are more than 5 years old or haven't been reviewed since major life changes

The strategies that protect and preserve family wealth in 2026 and beyond must be more sophisticated, more adaptable, and more carefully documented than ever before.

Act with Intention

Estate planning is an act of care and clarity. You've spent decades building your assets. With a bit of focused attention, you can ensure those assets accomplish what you intend — for your spouse, your children, your grandchildren and the causes you care about.

Federal exemption: $15 million per person ($30 million couple) – indexed for inflation from 2027
Annual gifting: $19,000 per recipient; $194,000 for non‑citizen spouse
Trust strategies: SLATs, dynasty trusts, GRATs, IDGTs, ILITs – each with unique benefits
State taxes: Over a dozen states have exemptions below $5 million – check your jurisdiction
QSBS: New 3‑year holding period, $15M exclusion, $75M asset limit

The one mistake I hope you avoid most of all is the easiest one to make: waiting. There will never be a perfect time to start, but there is a very real cost to postponing it.

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