A Higher Estate Exemption Does Not Replace a Family Wealth Plan
For 2026, the federal basic exclusion amount for estate and gift taxes is $15,000,000 per person, as set by legislation signed into law on July 4, 2025.1 For a married couple, careful planning, including a timely portability election on the first spouse’s estate tax return where appropriate, can effectively shelter up to $30 million from federal transfer taxes. The annual gift tax exclusion remains $19,000 per recipient for 2026, unchanged from 2025.1,2 Because the new exemption level is not scheduled to expire, although future legislation could change it, many families may conclude that estate planning is no longer a pressing concern. That conclusion may overlook important planning needs.
Federal estate tax is only one part of a family wealth plan. A plan also determines who receives your assets, when, and how; who makes decisions if you cannot; how your estate will pay bills and taxes; and whether your intentions are carried out with minimal conflict and delay. Those needs do not change when the exemption rises.
Two Different Tools: Annual Exclusion and Lifetime Exemption
It helps to distinguish two concepts that are often confused. The annual exclusion allows a donor to give up to $19,000 per recipient in 2026 without using any lifetime exemption and without a gift tax return, assuming no other reporting trigger applies.1,2 A donor may make annual exclusion gifts to as many recipients as desired. Married couples may elect to split gifts, effectively doubling the amount per recipient, but gift splitting generally requires filing a gift tax return.2
The lifetime exemption is different. It is a unified amount covering taxable gifts made during life and transfers at death. When a gift to one person exceeds the annual exclusion, the donor generally must file Form 709 by April 15 of the following year.2 Filing does not necessarily mean tax is owed; the excess is typically applied against the donor’s $15 million lifetime exemption, reducing the amount available at death.1,2 In addition, direct payments of qualified tuition and medical expenses to the provider are not counted as taxable gifts.2
Annual exclusion gifts can be a steady, simple way to transfer wealth over time, while larger lifetime gifts may be appropriate for families who want to shift future appreciation out of their estates. The right balance depends on cash-flow needs, family dynamics, and whether the giver is comfortable parting with control of the assets.
State Estate Taxes Can Apply Far Below the Federal Threshold
Federal rules are not the only rules. Twelve states and the District of Columbia impose their own estate tax, and many set exemptions well below the federal level.3 Massachusetts taxes estates above $2 million, and Oregon’s threshold is $1 million; neither threshold is adjusted for inflation.4 New York’s 2026 exemption is $7.35 million, but an estate that exceeds 105% of that amount loses the exemption entirely, a feature commonly called the estate tax cliff.4 Some states also impose inheritance taxes on what beneficiaries receive.3 A family with a home, retirement accounts, and life insurance may never approach the federal threshold yet still face meaningful state estate tax.
Where Estate Plans Commonly Fall Out of Date
Beneficiary designations often control more wealth than a will. Retirement accounts, life insurance, annuities, and transfer-on-death accounts pass directly to the named beneficiary, regardless of what a will or trust says. An outdated form naming a former spouse, a deceased parent, or no contingent beneficiary can undermine an otherwise careful plan.
Ownership and titling matter as well. Whether an asset is held individually, jointly, or in a trust affects how it passes, whether it goes through probate, and whether it is available to fund the plan’s intended trusts. Assets held in multiple states may require separate probate proceedings.
Trust provisions written years ago may reference exemption amounts or formulas that no longer fit. A formula designed when the exemption was much lower could now direct more or less to a particular trust than the family intends, potentially affecting a surviving spouse. Trustees, guardians, and agents named years ago may also no longer be the right choices.
Liquidity is another frequent gap. Estates often need cash to pay debts, expenses, and any state or federal taxes, while key assets such as a business, real estate, or concentrated stock may be difficult to sell quickly or fairly. Life insurance, cash reserves, or a structured sale plan may help reduce the risk of forced liquidation. Life insurance involves costs, underwriting requirements, and policy terms and limitations; any guarantees are subject to the claims-paying ability of the issuing insurer. Policy features should be reviewed carefully with a qualified professional before purchase.
Income tax considerations also deserve attention. When estate tax is not a concern, the income tax treatment of inherited assets, including the potential adjustment of cost basis at death for many assets, may become a larger planning factor. Lifetime gifts generally carry over the donor’s cost basis, so the choice between giving now and leaving assets at death involves trade-offs that should be evaluated with a tax professional.
Building a Plan for the Family, Not Only the Tax Code
A durable estate plan also addresses incapacity through durable powers of attorney and health care directives, provides for minor or vulnerable beneficiaries, and communicates intentions in a way that reduces the risk of conflict. Tax laws can change through future legislation, so flexibility, such as provisions that allow trustees or beneficiaries to adapt, can be valuable.
A higher federal exemption is a meaningful development, and it may simplify planning for some families. It is not, however, a substitute for a plan that reflects your values, your family’s circumstances, and the rules that apply where you live.
Advisor Perspective
Your advisor can help coordinate a review with your estate attorney and tax professional covering beneficiary designations, account ownership and titling, trust provisions and formulas, estate liquidity, and applicable state estate or inheritance tax rules.
Client Discussion Prompt
Does your existing estate plan still reflect your family’s goals and current rules?
Sources:
1. Internal Revenue Service, “What’s new — Estate and gift tax”. https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
- Internal Revenue Service, “Gifts & Inheritances” FAQ. https://www.irs.gov/faqs/interest-dividends-other-types-of-income/gifts-inheritances/gifts-inheritances-1
- Fidelity Investments, “Don’t take the ‘state’ out of estate planning”. https://www.fidelity.com/viewpoints/wealth-management/insights/state-in-estate-planning
- AARP, “States With Estate or Inheritance Taxes”. https://www.aarp.org/money/retirement/states-with-estate-inheritance-taxes/
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