Estate Tax Exemption 2026: $15M Permanent Guide

What Is the 2026 Federal Estate Tax Exemption?

The 2026 federal estate tax exemption is $15 million per individual and $30 million for married couples who elect portability. The One Big Beautiful Bill Act (Public Law 119-21), signed July 4, 2025, amended IRC § 2010(c)(3) to make this level permanent, removed all expiration language, and indexed the exemption for inflation starting in 2027 using 2025 as the base year. The 40% federal rate applies to any taxable amount above the exemption.

Key takeaways

• The $15 million per-person federal exemption is permanent — Congress would need to pass entirely new legislation to reduce it; there is no built-in expiration date.
• Twelve states plus Washington D.C. still impose their own estate taxes with exemptions as low as $1 million — the OBBBA changed none of them.
• New York's cliff provision under N.Y. Tax Law § 952 is the only surviving pure cliff in the country — Massachusetts eliminated its cliff through H.4104 in October 2023.
• The GST tax exemption also rose to $15 million but is not portable between spouses — a planning gap that survives even when portability is elected.
• Trusts drafted before 2026 with formula clauses funding "the maximum amount that can pass free of federal estate tax" may now sweep an entire estate into a bypass trust, cutting the surviving spouse off from principal and eliminating the income-tax step-up at the second death.
• Portability requires a timely Form 706 even when no federal estate tax is owed — skip it and forfeit up to $15 million of transferable exemption permanently.

Why the TCJA Sunset That Never Happened Still Shapes Your Plan

The Tax Cuts and Jobs Act of 2017 (Pub. L. No. 115-97) doubled the federal estate and gift tax basic exclusion amount from roughly $5 million to $10 million per person, both indexed for inflation. By 2025, that figure reached $13.99 million. Under IRC § 2010(c)(3) as written by the TCJA, the doubling was temporary — set to revert to the pre-2018 baseline on January 1, 2026.

The One Big Beautiful Bill Act resolved the uncertainty. Section 70106 of the OBBBA amended IRC § 2010(c)(3) to replace the $5 million baseline with $15 million and removed the expiration language entirely. For decedents dying and gifts made after December 31, 2025, the basic exclusion amount is $15 million — inflation-indexed from 2027 forward, with no sunset.

One practical consequence most articles miss: people who made large lifetime gifts in 2024–2025 specifically to beat the anticipated sunset now have additional unused exemption in 2026. Someone who gifted $13 million in 2025 when the exemption was $13.99 million now has roughly $2 million of fresh exemption in 2026 — worth revisiting with an estate attorney, particularly for GST allocation to dynasty trusts.

The anti-clawback rule — codified in Treasury Regulation § 20.2010-1(c) (Treasury Decision 9884, November 2019) — protects gifts made before any future reduction. Your estate receives credit for the higher exemption that applied when the gift was made, not any lower figure in effect at death. Completed gifts made today under the $15 million exemption lock in that protection regardless of what a future Congress does.

State Estate Taxes in 2026: Where the Real Traps Are

The OBBBA is a federal law. It did not amend a single state statute. Twelve states and Washington D.C. still impose their own estate taxes, entirely independent of the federal regime. If you live in — or own real property in — any of these jurisdictions, state-level planning is the priority.

†Washington's top rate dropped from 35% to 20% effective July 1, 2026 under Engrossed Senate Bill 6347, signed by Governor Ferguson on March 24, 2026. The exemption reset to $3,000,000 for deaths on or after July 1. See Washington estate tax law changes 2026 for the full rate tables.

Five states — Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania — impose an inheritance tax on beneficiaries rather than on the estate itself. Maryland is the only state with both. Iowa fully repealed its inheritance tax for deaths on or after January 1, 2025. Florida, Texas, California, Georgia, and North Carolina have no estate or inheritance tax of any kind.

New York's Three Tax Traps in One State

New York is the only remaining state with a pure cliff provision. Two other state-specific rules compound the problem and receive far less attention in most guides.

Trap 1: The cliff. Under N.Y. Tax Law § 952, once a taxable estate exceeds 105% of the basic exclusion amount — at $7,717,500 in 2026 — the entire exemption is eliminated and the tax applies to the full estate from dollar one.

Here is what that looks like in specific 2026 dollar figures:

• Estate A — $7,300,000. Below the $7,350,000 exemption. New York estate tax owed: $0.
• Estate B — $7,400,000. Just $50,000 over the exemption, inside the cliff zone. New York estate tax owed: approximately $136,000. Effective tax rate on that $50,000 excess: over 250%. Estate B's heirs receive less net value than Estate A's heirs despite a nominally larger estate.
• Estate C — $7,800,000. Past the 105% cliff. No exemption applies at all. New York estate tax owed: approximately $746,000, computed on the full $7.8 million from dollar one at the graduated rate schedule (3.06% to 16%) under N.Y. Tax Law § 952.

Three planning tools address the cliff. First, lifetime gifting: New York has no state gift tax, so assets gifted during life reduce the taxable estate without consuming any state exemption at death. Second, credit shelter trusts: a surviving spouse can disclaim part of an inherited estate, routing assets into a credit shelter trust excluded from the survivor's taxable estate. Third, the "Santa Clause" charitable provision: a formula bequest directing to charity the amount above the exemption — but only when the charitable deduction saves more than it costs — can reduce the estate to just below the cliff. The Santa Clause breakeven for 2026 is approximately $8,140,000; above that level, the math no longer favors the charitable redirect.

Trap 2: No portability. Unlike the federal system, New York does not allow a surviving spouse to inherit the deceased spouse's unused state exemption. A New York couple with a combined $14 million estate and no bypass trust planning can owe New York estate tax at the surviving spouse's death even when they owe zero federal tax.

Trap 3: The three-year gift clawback. Under N.Y. Tax Law § 954, any taxable gift made within three years of a New York resident's death is clawed back into the decedent's estate for state estate tax purposes. Gifts made more than three years before death are permanently outside the estate. New York residents need to begin gifting well in advance — a last-minute gift made in April 2024 by someone who dies in February 2026 is pulled back in.

Illinois residents near the $4 million exemption face a different version of the state gap: a $6 million Illinois estate pays no federal estate tax but owes Illinois estate tax on $2 million at rates up to 16%.

Massachusetts After the 2023 Reform: No Cliff, But Still a Planning Problem

Most estate-planning articles published before 2024 describe Massachusetts as having a cliff identical to New York's. That is no longer accurate.

Massachusetts eliminated its cliff through H.4104, enacted October 4, 2023. The law raised the exemption from $1 million to $2 million and added a $99,600 credit equal to the tax on the first $2 million of estate value. Only the amount above $2 million is now effectively taxed.

What Massachusetts still has:

• No portability between spouses. A married couple with $4 million whose plan lacks a credit shelter trust loses one spouse's $2 million exemption at the first death — that omission can cost approximately $99,600 to $320,000 in avoidable Massachusetts estate tax.
• No inflation indexing. The $2 million threshold under M.G.L. ch. 65C has no adjustment mechanism. As home values and investment accounts grow, more Massachusetts families will cross the threshold each year.
• No gift lookback. Unlike New York, Massachusetts does not claw back pre-death gifts. Lifetime gifting permanently removes assets from the Massachusetts taxable estate.

The Formula Clause Time Bomb: When Your Old Trust Broke in 2026

This is the planning error that estate attorneys across the country flagged in early 2026 — and it affects thousands of families who thought they planned ahead.

Many revocable trusts drafted between 2010 and 2025 include a bypass trust (also called a credit shelter trust or B trust) with a formula like this: "Fund the bypass trust at the first spouse's death with the maximum dollar amount that can pass free of federal estate tax."

Under a $7–$13 million exemption, that formula worked predictably. Under a $15 million exemption, it can swallow an entire estate.

The worked example. James and Karen drafted a revocable trust in 2019 when the exemption was $11.4 million. Their combined assets: a rental property (purchased in 1998 for $400,000, now worth $2.2 million, depreciable basis approximately $200,000), a brokerage account worth $2.1 million, and other assets worth $1.2 million. Total estate at James's death in 2026: $5.5 million.

Under the $15 million exemption, the formula clause sweeps the entire $5.5 million into the bypass trust. Karen receives income from the trust, but the trustee controls principal. Three consequences:

1. Loss of principal access. Karen had expected to sell the rental property to fund retirement housing. She cannot spend the proceeds without trustee approval — and the trust document may constrain that approval significantly.

2. Loss of step-up in basis. Assets in the bypass trust are not included in Karen's gross estate at her death. When the rental property (basis $200,000, fair market value $2.2 million) is eventually sold, there is no step-up under IRC § 1014. The $2 million embedded gain faces capital gains tax of approximately $476,000 at the 23.8% combined long-term rate and net investment income tax applicable to high earners — entirely avoidable had the property remained in Karen's taxable estate and received a step-up at her death.

3. No estate tax saved. Karen's own estate is $3.5 million — well below the $15 million federal exemption. The bypass structure solves a tax problem that no longer exists, while creating a real income-tax and access problem that costs Karen's heirs nearly half a million dollars.

The fix is straightforward but requires action before the first spouse dies. An estate attorney can review the formula clause and amend the trust to cap bypass trust funding at a specific dollar amount, use a disclaimer-based approach that gives the surviving spouse post-mortem flexibility, or restructure using a QTIP marital trust with elective portability treatment. If your trust contains language referencing "the applicable exclusion amount" or "the maximum amount that can pass free of estate tax" and was drafted before 2026, treat it as a priority review — not a passive wait-and-see situation.

The Portability Trap: One Missing Form Can Cost $1.2 Million

The scenario. Maria and Tom are married. Tom dies in 2026 with $7 million of assets in his name. He leaves everything to Maria, who receives the assets tax-free under the unlimited marital deduction. Maria's own assets are $11 million. Tom's executor sees a $7 million estate well below the $15 million federal exemption and concludes there is nothing to file.

Without portability. Tom's $15 million exemption is permanently wasted. When Maria later dies with roughly $18 million, her individual exemption shelters $15 million. The remaining $3 million is subject to a 40% federal estate tax — a $1.2 million bill that was entirely preventable.

With portability. Tom's executor files Form 706 within nine months of Tom's death and elects portability under IRC § 2010(c)(5)(A). Tom's entire $15 million DSUE transfers to Maria. When Maria dies with $18 million, her combined exemption is $30 million — zero federal estate tax owed. The only difference between these two outcomes is one Form 706.

The Rev. Proc. 2022-32 safety net. Revenue Procedure 2022-32 (effective July 8, 2022) allows qualifying estates to file Form 706 up to five years after the decedent's date of death without a private letter ruling, by noting "FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER § 2010(c)(5)(A)" at the top of the return. This is a fallback, not a plan. After five years, relief requires an expensive private letter ruling under Treas. Reg. § 301.9100-3 and is uncertain.

GST exemption is not portable. The generation-skipping transfer tax exemption under IRC § 2631(c) rises to $15 million per person in 2026, but the GST exemption is not portable between spouses. If Tom dies without allocating his GST exemption to a dynasty trust or other GST-exempt structure, that exemption is permanently lost. Portability preserves the estate tax DSUE only. Treat GST planning as a separate, parallel item.

If you're thinking about how to choose an executor, this is exactly the kind of consequential filing decision your executor needs to understand before taking the role.

The Step-Up Trap: When Gifts Made to Beat a Sunset Backfire

Under IRC § 1015, assets gifted during life carry over the donor's original cost basis to the recipient. Under IRC § 1014, assets inherited at death receive a stepped-up basis equal to fair market value on the date of death, permanently erasing pre-death appreciation.

The worked example. In 2024, David gifts $2 million of stock he purchased decades ago for $200,000 to his daughter Emma, intending to beat the anticipated TCJA sunset. The gift carries over David's $200,000 basis. Emma's embedded gain: $1.8 million. At long-term capital gains rates plus the 3.8% net investment income tax (23.8% for high earners), that represents approximately $428,400 in avoidable capital gains taxes Emma will eventually pay.

Had David kept the stock until death, Emma would have inherited it with a stepped-up basis under IRC § 1014. Capital gains tax on the original $1.8 million of appreciation: $0. Federal estate tax on a David's sub-$15M estate: also $0.

When gifting still makes sense despite the basis cost: (a) the recipient is in the 0% long-term capital gains bracket and will sell immediately; (b) the estate is projected to grow above $15 million, making future estate tax exposure more costly than the basis carryover; (c) the goal is to remove future appreciation from the estate, not current value.

The IRC § 1014(e) one-year trap blocks step-up strategies entirely: if a donor gives an appreciated asset to a dying family member within one year of that person's death, and the asset passes back to the original donor through the decedent's estate, the step-up is denied and the donor receives the asset back at the pre-gift carryover basis.

For business owners specifically, the basis and valuation discount considerations interact in additional ways worth reviewing with a tax advisor. For digital assets and cryptocurrency, basis tracking is particularly complex and benefits from explicit documentation in your estate plan.

Does Your Estate Need Attention? A Decision Table

What to Do With Your Estate Plan Now

1. Check whether your state has an estate tax. If you live in — or own real property in — any of the 13 jurisdictions in the table above, run a state-level exposure analysis first. Oregon residents need this the moment their estate clears $1 million.

2. Read every formula clause in any existing trust. A bypass trust that funds "up to the applicable exclusion amount" now references $15 million, not $7 million. Confirm the resulting dollar amount still matches your intent. An attorney can review and amend the document if the formula misfires.

3. Audit the basis of any "sunset gifts." If you made large gifts of appreciated assets in 2024 or 2025 specifically to use the TCJA exemption before it expired, identify the cost basis that was transferred. Quantify the capital gains exposure now held by the recipients and whether the remaining portfolio should prioritize holding appreciated assets until death.

4. Instruct your executor explicitly on Form 706. If you are married, add a specific provision directing your executor to file Form 706 and elect portability after your death, even when your estate owes no federal estate tax. Do not leave this to a conclusion the executor will draw independently.

5. Address the GST gap if you have grandchildren. Confirm that your GST exemption is allocated — either through lifetime gifts to a dynasty trust or through a testamentary GST allocation at death. This does not happen automatically and does not transfer via portability.

6. Update beneficiary designations. Retirement accounts, life insurance, and payable-on-death accounts pass entirely outside your will. They go to whoever is named on the account form — regardless of what your will or trust says. For a picture of what happens when none of this is in place, see what happens if you die without a will.

7. Decide between a will and a living trust. A living trust avoids probate, keeps your estate private, and lets a successor trustee act without court involvement if you become incapacitated. Our will vs. living trust guide walks through when each approach fits different family situations.

8. Note the non-citizen spouse rule. Gifts to a spouse who is not a U.S. citizen are capped at $194,000 per year under IRC § 2523(i)(2) for 2026, not the unlimited marital deduction that applies between citizen spouses. Qualified domestic trust (QDOT) planning is required for the marital deduction at death as well.

You can create your will online through Pactlio's guided interview — the process generates state-specific execution instructions (witness counts, self-proving affidavit availability, notarization requirements) alongside the draft document, ready for attorney review. For a state-by-state look at what makes an online will legally valid, see is an online will legal.

Common Mistakes to Avoid

• Assuming "no federal tax" means "no planning needed." State estate taxes catch families at $1 million, probate costs hit almost everyone, and beneficiary designations age out regardless of tax law.
• Skipping Form 706 because no federal estate tax is owed. The portability election is not automatic. No filing means no DSUE — permanently — and forfeiture of up to $15 million in transferable exemption.
• Leaving a pre-2026 formula clause unreviewed. A formula clause calibrated at $7 million can now sweep $15 million into a bypass trust, freeze the surviving spouse out of assets they expected full access to, and eliminate the income-tax step-up at the second death — all without saving a dollar of estate tax.
• Gifting highly appreciated assets that would be better held until death. Under IRC § 1015, gifts carry over the donor's basis. Under IRC § 1014, inherited assets get a step-up. With the $15 million exemption, most families lose more to capital gains taxes on gifted assets than they would have lost to any estate tax.
• Conflating New York and Massachusetts. Massachusetts eliminated its cliff through H.4104 in October 2023. New York's cliff under N.Y. Tax Law § 952 is the only surviving pure cliff — and the three-year gift clawback under § 954 makes it harder to escape than most articles explain.
• Forgetting that the GST exemption is not portable. Electing portability preserves the estate tax DSUE. It does nothing for the deceased spouse's GST exemption. Treat them as two separate planning items.
• Ignoring state inheritance taxes. Five states tax the recipient, not the estate. Who you leave assets to — not just how much — determines the bill in Kentucky, Nebraska, New Jersey, Maryland, and Pennsylvania.

Sources

• One Big Beautiful Bill Act, Public Law 119-21 (enacted July 4, 2025): https://www.congress.gov/bill/119th-congress/house-bill/1/text
• IRS: What's New — Estate and Gift Tax (confirming $15M basic exclusion for 2026): https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
• IRS: Instructions for Form 706 (09/2025 revision, including Rev. Proc. 2022-32 late portability guidance): https://www.irs.gov/instructions/i706
• Revenue Procedure 2022-32 (late portability election, up to 5 years): https://www.irs.gov/pub/irs-drop/rp-22-32.pdf
• IRS Rev. Proc. 2025-32 § 4.42 (annual gift exclusion $19,000 for 2026): https://www.irs.gov/pub/irs-drop/rp-25-32.pdf
• Treasury Decision 9884 / Treas. Reg. § 20.2010-1(c) (Anti-Clawback Final Regulations, November 2019): https://www.federalregister.gov/documents/2019/11/26/2019-25434/regulations-reducing-exclusion-amount
• Internal Revenue Code § 2010 (Unified Credit Against Estate Tax): https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2010&num=0&edition=prelim
• Internal Revenue Code § 2631(c) (GST exemption, non-portability): https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2631&num=0&edition=prelim
• Internal Revenue Code § 1014 (Stepped-Up Basis at Death): https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1014&num=0&edition=prelim
• Internal Revenue Code § 1015 (Carryover Basis for Gifts): https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1015&num=0&edition=prelim
• N.Y. Tax Law § 952 (cliff provision, 105% threshold): https://www.nysenate.gov/legislation/laws/TAX/952
• N.Y. Tax Law § 954 (three-year gift clawback): https://www.nysenate.gov/legislation/laws/TAX/954
• New York State Department of Taxation and Finance — Estate Tax ($7,350,000 BEA for 2026): https://www.tax.ny.gov/pit/estate/etidx.htm
• Central New York Community Foundation — NY Estate Tax Cliff & The Santa Clause (breakeven math ~$8,140,000): https://cnycf.org/new-york-state-estate-tax-cliff-the-santa-clause/
• Twomey Latham — Avoiding the Cliff: Understanding New York's Estate Tax (dollar examples): https://www.suffolklaw.com/avoiding-the-cliff-understanding-new-yorks-estate-tax/
• Massachusetts H.4104 (October 2023) — eliminating cliff, raising exemption to $2M, adding $99,600 credit: https://malegislature.gov/Bills/193/H4104
• Massachusetts General Laws Chapter 65C (estate tax statute): https://malegislature.gov/Laws/GeneralLaws/PartI/TitleIX/Chapter65C
• Washington Engrossed Senate Bill 6347 (signed March 24, 2026 — rates rollback to 20%, exemption reset to $3M from July 1, 2026): https://app.leg.wa.gov/billsummary?BillNumber=6347&Year=2026
• Washington Department of Revenue — Estate Tax (confirming $3,000,000 exemption from July 1, 2026): https://dor.wa.gov/taxes-rates/other-taxes/estate-tax
• Pierce Atwood: The One Big Beautiful Bill Act and Estate Planning: https://www.pierceatwood.com/alerts/one-big-beautiful-bill-act-and-estate-planning-what-you-need-know
• Nelson Mullins: 2026 Estate and Gift Tax Update: https://www.nelsonmullins.com/insights/blogs/tax-reports/all/2026-estate-and-gift-tax-update
• Measure Law: Estate and Tax Planning Post-OBBBA — The Shift from Estate Tax to Capital Gains Concerns: https://www.measurelaw.com/post/estate-and-tax-planning-post-obbba-the-shift-from-estate-tax-to-capital-gains-concerns
• TrustFunding: Estate Planning News Roundup May 2026 — Formula Clause Fallout: https://trustfunding.com/blog/estate-planning-news-roundup-may-2026/
• Morgan Lewis: IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2026: https://www.morganlewis.com/pubs/2025/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2026

This article is general information, not legal advice. Laws vary by jurisdiction. Pactlio generates professional drafts for review — have a licensed attorney review anything important.