Estate Planning

From an estate and gift tax perspective, the most significant change OBBBA made is a permanent increase to the estate, gift, and generation-skipping transfer (GST) tax exemption amounts. For 2026, these amounts are $15 million per individual or $30 million for a married couple (to be reviewed annually for inflation adjustments), up from $ 13.99 million per individual or $27.98 million for a married couple in 2025. The new legislation retains the TCJA-era tax brackets for trusts and estates. This means that for assets transferred during a lifetime or at death with a cumulative value exceeding the exemptions, the marginal tax rate remains 40% of the value over the exemptions.

Spousal Exemption Portability

If part or all of one spouse's estate tax exemption is unused at that spouse's death, the estate can elect to permit the surviving spouse to use the deceased spouse's remaining exemption. This exemption portability provides flexibility upon the first spouse's death, but it has some limitations. While a portability-only estate tax return can be filed up to two years from the deceased spouse's death, it can be costly. Be aware that portability is available only from the most recently deceased spouse. It doesn't apply to the GST tax exemption and isn't recognized by many states for estate or inheritance tax purposes.

Step Up in Basis

A new fair market value is established for assets received after a donor's death—a step up in basis—but there is no step-up in basis for gifts received during a donor's life. The step-up in basis sets a new starting value for inherited assets, which can make a big difference if the assets have appreciated significantly.

A caution, though: Transferring assets to an irrevocable trust, a formerly popular strategy for transferring a family home, can take the trust assets out of the grantor's estate for all purposes. If the asset is no longer part of the grantor's taxable estate, it won't qualify for a step-up in basis. The assets in your irrevocable trust keep the same basis as when they are transferred to the next generation—or maybe to multiple generations. Be sure to review your trust arrangement with your estate professional.

Gift Taxes and Lifetime Giving

Annual gifting can prove an effective estate transfer strategy. The annual gift tax exemption is $19,000 per donor for each recipient in 2026. Amounts over that subtract from your estate tax basic exclusion amount.

If, for example, you and your spouse each max out your annual gift exemption to two children and two grandchildren, you'll avoid gift tax and preserve your entire estate tax exemption. In this example, a couple could gift $152,000 tax-free per year. Be sure, however, to use your annual exemption by December 31 because it doesn't carry over from year to year.

SMART MOVE: Spouses who are both U.S. citizens may transfer unlimited amounts to each other without incurring any gift tax, as any assets in excess of the couple's combined estate tax exemption will be taxed at the death of the surviving spouse, and transferring assets to the survivor defers the tax that the IRS will eventually collect.

SMART MOVE: If executed properly, paying for a grandchild's or some other person's tuition or medical expenses is an exception to the gift tax. Payments made directly to providers or schools aren't considered gifts.

Gifts to a non-US citizen spouse, however, are subject to limitations. Since a non- US citizen spouse may not be subject to the U.S. estate tax, one cannot transfer unlimited assets to a non-US citizen spouse, since that transferred wealth could potentially avoid U.S. estate taxation upon the non-US citizen spouse's death.

Thus, when the recipient spouse isn't a U.S. citizen, and regardless of whether the non-U.S. citizen spouse is a resident or nonresident of the United States, the amount of tax-free gifts is limited to an annual exclusion amount. For calendar year 2026, the first $194,000 (up from $190,000 in 2025) of gifts to a spouse who is a non-US citizen aren't included in the total amount of taxable gifts.

SMART MOVE: The increased exemptions create opportunities to implement or expand lifetime gifting. Strategies you may want to explore with your trusted advisor include outright gifts or gifts in trust for children and future generations (dynasty trusts), spousal lifetime access trusts (SLATs), grantor-retained annuity trusts (GRATs), and charitable lead trusts (CLTs) or charitable remainder trusts (CRTs). Also, reassess trusts established under prior law, such as credit shelter, bypass, or marital trusts, in light of the higher exemptions.

State-level Estate Tax

Even if your estate is no longer subject to federal estate tax, you need to review and coordinate with any estate and inheritance taxes your state may levy. States can impose separate estate taxes with exemption amounts that are significantly lower than the federal level. These lower thresholds mean state estate taxes could apply even when federal estate taxes don't, making state-specific strategies essential for effective estate planning.