The scheduled sunset of the enhanced federal estate, gift, and generation-skipping transfer (GST) tax exemptions at the end of 2025 did not occur. Instead, Congress enacted the One Big Beautiful Bill Act (OBBBA), which extended the higher exemption amounts beyond December 31, 2025, and increased those exemption amounts 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. Additionally, the transfer tax rules remain subject to future legislative change, and many wealth transfers completed in recent years should be assessed to ensure they continue to align with planning goals.

Overview of Federal Estate, Gift, and GST Tax Considerations for 2026

Increase in Federal Lifetime Estate and Gift Tax Exclusion

Effective January 1, 2026, the lifetime exemption applicable for federal estate, gift, and GST tax purposes (the Lifetime Exemption) is $15 million per individual, with a combined exemption of $30 million for married couples. This represents an increase of $1,010,000 per person. The Lifetime Exemption will continue to be adjusted annually for inflation.

The $1,010,000 per-person increase in the Lifetime Exemption provides additional capacity for gifts, including for individuals who had exhausted their available exclusion.

OBBBA did not affect state death taxes, many of which apply at substantially lower exemption levels.

Additionally, the OBBBA did not extend any increase to a non-U.S. individual who is not domiciled in the United States, whose U.S. estate tax exemption remains fixed at $60,000. This disparity makes proper structuring of U.S. investments critical for international families to avoid significant tax exposure.

Insight:

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. While the extension of the increased exemption amount eliminated a sense of urgency, it did not eliminate the importance of such issues. It does permit planning to be done with greater deliberation and more alignment to family objectives.

Annual Gift Tax Exclusion

For 2026, the federal annual gift tax exclusion remains $19,000 per recipient. This amount may be gifted to any number of recipients each year without using any portion of the Lifetime Exemption or requiring the filing of a federal gift tax return. For married couples, the exclusion may be effectively doubled to $38,000 per recipient through gift-splitting; however, a gift tax return is required to elect gift-splitting.

Insight:

Annual exclusion gifts continue to be an effective method of transferring wealth without consuming Lifetime Exemption, particularly when used consistently and in coordination with broader estate planning objectives. In appropriate cases, annual exclusion gifts may also be used to support life insurance and other multi-generational wealth transfer strategies.

Portability

The federal portability rules remain unchanged for 2026, allowing a surviving spouse to use a deceased spouse’s unused estate and gift tax exemption through a timely portability election. Portability is a valuable planning tool, particularly where planning has not been fully implemented prior to the first spouse’s death. If used properly, it may preserve additional basis planning opportunities at death. Nonetheless, portability cannot preserve GST exemption and provides no governance benefits. Unused GST exemption cannot be transferred to a surviving spouse through portability.

Portability is not automatic. A timely filed federal estate tax return is required to elect portability, even if no federal estate tax is otherwise due. The IRS continues to provide limited relief in certain circumstances for late portability elections; however, reliance on such relief should not be assumed.

Insight:

Portability provides valuable flexibility; however, it should be a complement to and not a substitute for proper trust planning, particularly where appreciation, GST planning, or asset protection are priorities.

Federal Tax Rates for Estates and Trusts Remain Unchanged

The federal estate, gift, and GST tax rates remain unchanged for 2026, with a top marginal rate of 40%.

Additionally, the federal income tax rate structure applicable to estates and non-grantor trusts remains in effect. Income tax brackets for estates and trusts are greatly compressed. As a result, estates and non-grantor trusts reach the highest marginal federal income tax rate of 37%, plus the 3.8% net investment income tax, at low levels of taxable income. These rates apply to taxable income in excess of $16,250 for the 2026 tax year, subject to annual inflation adjustments.

Insight:

While the estate and gift tax exemption amounts receive the most attention, income tax considerations — particularly the compressed income tax brackets applicable to estates and non-grantor trusts — often have a more immediate impact on planning. Attention should be given to coordinating transfer-tax planning with income-tax efficiency, including decisions regarding grantor trust status, distributions, and the timing of income recognition.

Federal Charitable Deduction Floor

For individual taxpayers, the federal income tax charitable deduction is subject to a 0.5% of adjusted gross income (AGI) floor. As a result, charitable contributions are deductible only to the extent such donations exceed 0.5% of AGI and are further limited based on the type of property contributed and the nature of the charitable recipient.

Estates and non-grantor trusts may deduct qualifying charitable payments from gross income and are not subject to a minimum deduction floor or AGI-based percentage limitations, provided the governing instrument authorizes the deduction and statutory requirements are satisfied.

Insight:

The presence of a deduction floor at the individual level, combined with AGI-based limits, can materially reduce the current tax benefit of charitable giving, making trust- or estate-level charitable planning particularly effective in appropriate circumstances. Some clients may also wish to consider concentrating charitable giving in a single year to mitigate the adverse effect of the deduction floor.

Recommendations in 2026

Based on current law, consider the following:

1. Confirm that estate planning documents still function as intended under current exemption levels.
2. Review whether formula clauses continue to operate as intended given the increased Lifetime Exemption.
3. Reassess projected estate values, particularly for appreciating or illiquid assets.
4. Review prior gifting strategies for administrative efficiency and continued suitability.
5. Evaluate liquidity planning, including insurance and other strategies.
6. Maintain flexibility to respond to future legislative changes.
7. For international clients, review the ownership structure of U.S.-situs assets with qualified U.S. tax advisors to evaluate potential U.S. estate tax exposure and planning alternatives.

Next Steps

We would be pleased to discuss these developments and how OBBBA may affect your estate plan and planning objectives. Please feel free to contact us if you would like to schedule a review or have any questions regarding your planning.

This update is provided for general informational purposes only and does not constitute legal or tax advice.