The federal exemption is now permanent and high. So estate and gift tax exemption planning is less about a deadline and more about using your room to give. The real work is lifetime gifts, state taxes, and whether your old documents still send assets where you want.
For two years, much of the conversation around wealth transfer was driven by a clock. The higher federal exemption from the 2017 tax law was set to expire at the end of 2025, and families rushed to lock in large gifts before the door closed. That door did not close. The One Big Beautiful Bill Act, signed in July 2025, made the higher exemption permanent and raised it again for 2026.
This changes the question you should be asking. The work is no longer about beating a sunset. It is about whether a plan written for that sunset still fits the law you actually live under, and whether you are using your exemption in the way that serves your family.
How Has Estate and Gift Tax Exemption Planning Changed?
The deadline disappeared, but the planning did not. The federal estate and gift tax exemption is now permanent at a high level and indexed for inflation. So the urgency shifts from a fixed date to your own circumstances: the size of your estate, your state of residence, and how well your documents match current law.
What the Permanent Exemption Means for Your Plan
For 2026, the federal lifetime exemption sits at 15 million dollars per person, or 30 million dollars for a married couple using portability. In 2025 it was 13.99 million dollars per person. The exemption is now indexed for inflation starting in 2027, and the top federal estate tax rate above the exemption remains 40 percent. These figures come from the IRS and the 2025 law, not from any single firm.
The practical effect is that many more families now sit comfortably below the federal threshold. That is good news, but it carries a quiet risk. Estate plans drafted years ago often contain formula clauses that fund a trust with whatever amount equals the exemption. When the exemption was 5 million dollars, that formula behaved one way. At 15 million dollars, the same words can pour far more into a trust than you intended, and far less to a surviving spouse outright. Reviewing those clauses is part of sound estate and wealth transfer strategy, not an optional cleanup task.
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Lifetime Gifts and the Cost of Waiting
A larger permanent exemption gives you more room to move assets out of your estate during your life. Two tools do most of the work. The annual gift tax exclusion lets you give 19,000 dollars per recipient in 2026 without touching your lifetime exemption or filing a return. A married couple can give 38,000 dollars per recipient by splitting gifts, though splitting requires a gift tax return. Used steadily across children and grandchildren, these gifts can move meaningful value over time.
The lifetime gift tax exemption is the larger lever. Gifts above the annual exclusion draw down your lifetime amount, and the estate and gift tax exemption is unified, so a dollar used while living is a dollar not available at death. Giving early has a possible advantage: future growth on the gifted asset happens outside your estate. It also carries a real trade-off. Assets you keep until death generally receive a step-up in basis, while assets you give during life carry your original basis to the recipient. For appreciated holdings, the income tax cost of a future sale can offset the transfer tax benefit. Weighing that balance is where capital gains tax planning meets transfer tax planning.
Roth assets sit in an interesting place in this picture. Converting traditional retirement money to a Roth and paying the income tax now removes that tax cash from your estate and leaves heirs an account with no income tax due on withdrawals. For some families, pairing a Roth conversion strategy with a gifting plan supports both goals at once, though the income tax bill in the conversion year deserves careful timing.
Why State Taxes Still Matter
The federal picture is only half the map. The 2025 law did not touch state death taxes, and roughly a dozen states plus the District of Columbia impose their own estate or inheritance tax. Several apply at thresholds far below the federal level. Massachusetts taxes estates above 2 million dollars and Oregon above 1 million dollars, amounts that catch many families who owe nothing federally. A plan that looks complete on paper at the federal level can still leave a state estate tax bill that surprises your heirs.
This is why residency and asset location belong in the conversation. Where you live, where you own real estate, and where you intend to retire all affect your estate tax threshold at the state level. The federal exemption amount may give you comfort while a state rule quietly does not. Mapping both layers is a core part of estate distribution planning for families with assets in more than one state.
Coordinating with Your Estate Attorney and CPA
Good transfer tax planning is rarely a solo act. Your estate attorney drafts and updates the documents, your CPA models the income tax cost of gifts and conversions, and your advisor connects those moving parts to the rest of your financial life. When these professionals work from the same plan, the result tends to hold together better than three separate opinions stitched after the fact. This kind of fiduciary coordination is the quiet engine behind a plan that ages well.
It also keeps the plan honest as the law moves. Permanent in tax law means until the next Congress changes it, so flexibility still matters. Structures that allow a trustee to adapt, and a regular review cadence, give a family room to respond when rules shift. The guiding idea is simple: Preserve. Strengthen. Grow.™ A plan that can bend without breaking serves you across more than one political cycle. You can also read more in our Estate & Wealth Transfer Strategy guide.
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Frequently Asked Questions
What Is the Federal Estate and Gift Tax Exemption for 2026?
For 2026 the federal lifetime exemption is 15 million dollars per person, or 30 million dollars for a married couple using portability. It is unified across gifts and estates, so lifetime gifts above the annual exclusion reduce what remains at death. The amount is indexed for inflation beginning in 2027.
Did the 2025 Sunset of the Higher Exemption Actually Happen?
No. The higher exemption was scheduled to expire at the end of 2025, but the One Big Beautiful Bill Act made it permanent and raised it for 2026. There is no longer a year-end deadline forcing large gifts, though families who acted before the change are protected by the anti-clawback rule.
Should I Still Make Large Lifetime Gifts Now?
It depends on your goals, your estate size, and your assets. Gifting moves future growth outside your estate, which may help larger estates, but gifted assets carry your original basis rather than receiving a step-up at death. For appreciated holdings, the income tax cost can offset the transfer tax savings, so the decision deserves a clear two-sided analysis.
How Does the Annual Gift Tax Exclusion Work?
The annual gift tax exclusion lets you give 19,000 dollars per recipient in 2026 without using your lifetime exemption or filing a gift tax return. A married couple can give 38,000 dollars per recipient by electing to split gifts, which does require a return. Consistent annual gifts can transfer meaningful value over many years.
Do State Estate Taxes Still Apply If I Am Under the Federal Limit?
Yes. State death taxes are separate from federal rules, and several states tax estates well below the federal threshold. Massachusetts and Oregon, for example, begin taxing at levels that catch many families who owe no federal estate tax. Your state of residence and where you own property both affect your exposure.
Why Would My Old Estate Plan Need a Review Now?
Many older plans use formula clauses tied to the exemption amount. Because the exemption is far higher than when those documents were written, the same wording can fund a trust far more heavily than you intended and leave a spouse with less than expected. A review confirms the plan still reflects your wishes under current law.
Who Should Be Involved in Estate and Gift Tax Exemption Planning?
Your estate attorney, your CPA, and your financial advisor should work from one coordinated plan. The broader topic of inheritance and sudden wealth planning often touches investments, taxes, and family goals at the same time, so aligning these professionals helps avoid gaps and conflicting advice as your situation changes.
