Big News for Your Estate Plan: The Federal Estate Tax Exemption Jumps to $15 Million in 2026
Imagine David and Linda, a married couple in their early 60s living in Temecula. They created their trust around 2010, during a period when federal estate tax law was changing rapidly, and attorneys routinely used mandatory trust divisions to protect families against future estate tax exposure.
Their trust requires that when the first spouse dies, a portion of the assets move into an irrevocable "bypass" or "credit shelter" trust. At the time, that type of planning made sense for many families.
Sixteen years and several major tax law changes later, however, the same provision may create more complexity than tax savings.
David and Linda's situation isn't unusual. Many older estate plans throughout California were designed around federal estate tax exemptions that were dramatically lower than they are today. That's why the latest change in federal law is worth paying attention to, even if your estate is nowhere near $15 million.
As of January 1, 2026, the federal estate and gift tax exemption increased to $15 million per individual, up from $13.99 million in 2025. For married couples, proper planning and use of portability can potentially preserve up to $30 million of federal estate tax exemption.
The change was enacted as part of the One Big Beautiful Bill Act (OBBBA), signed into law in July 2025. Unlike the temporary increase under prior law, the new $15 million amount does not have a scheduled sunset. Beginning in 2027, it will also be adjusted annually for inflation.
In other words, the estate tax "cliff" that many families and advisors were preparing for at the end of 2025 never happened.
A Bit of History: Why This Number Keeps Moving
If it feels like the federal estate tax exemption is constantly changing, that's because it has changed significantly over the past several decades.
In 2000, the exemption was only $675,000. By 2017, it had risen to $5.49 million per person. The Tax Cuts and Jobs Act of 2017 roughly doubled the exemption beginning in 2018, eventually reaching $13.99 million in 2025.
But that increase was scheduled to expire at the end of 2025. Without congressional action, the exemption would have dropped substantially in 2026.
Instead, Congress established a new $15 million base exemption beginning in 2026, with inflation adjustments beginning in 2027.
The practical lesson for your family is an important one: estate plans written around a particular tax law or exemption amount can become outdated as the law changes.
A good estate plan should be reviewed periodically to make sure strategies that once provided significant tax benefits aren't now creating unnecessary complications.
What Actually Changed in 2026?
The individual estate and gift tax exemption is now $15 million, up from $13.99 million in 2025.
For married couples, proper planning and use of portability can potentially preserve up to $30 million of federal estate tax exemption.
The generation skipping transfer tax exemption is also $15 million.
The top federal estate and gift tax rate remains 40%.
There is no scheduled sunset under current law.
Beginning in 2027, the $15 million base will be adjusted annually for inflation.
Of course, "permanent" in the tax world doesn't mean Congress can never change the law again. It simply means there is no automatic expiration date built into the current law.
A Note About Portability
Portability allows a surviving spouse to potentially use the deceased spouse's unused federal estate tax exemption.
But portability isn't automatic. The deceased spouse's estate generally must file a federal estate tax return, Form 706, and make the portability election, even when the estate is otherwise too small to require an estate tax return.
Missing the normal filing deadline does not necessarily mean the opportunity is lost forever. Certain estates that were not otherwise required to file an estate tax return may qualify for a simplified procedure allowing a late portability election for up to five years after the deceased spouse's death.
Still, families should not assume they can deal with portability years later. Whether a Form 706 should be filed is an important issue to consider as part of the estate and trust administration following the first spouse's death.
Why This Matters Even If You Don't Have a $15 Million Estate
For most families we work with in California, federal estate tax isn't the primary reason they need an estate plan.
California currently has no state estate tax, and no inheritance tax, and a $15 million federal exemption means relatively few families will owe federal estate tax.
But estate planning was never just about estate taxes.
A properly funded revocable living trust can still help your family avoid probate, maintain privacy, and provide instructions for managing your assets if you become incapacitated. Your estate plan also identifies who can make financial and healthcare decisions for you and determines how and when your assets ultimately pass to the people you care about.
Those issues matter whether your estate is worth $1 million, $5 million, or $15 million.
Where the new exemption becomes particularly relevant is for people who already have an estate plan, especially one created 10, 15, or 20 years ago.
Many older trusts were designed when federal estate tax exemptions were much lower. As a result, they may contain mandatory "AB," "bypass," or "credit shelter" trust provisions requiring assets to be divided into separate trusts after the first spouse dies.
At the time, those provisions may have provided an important estate tax benefit.
Today, depending on the family's circumstances, a mandatory split may instead create unnecessary administrative complexity, require separate trust accounting and income tax returns, limit the surviving spouse's flexibility, and potentially prevent assets held in the bypass trust from receiving another adjustment in income tax basis when the surviving spouse later dies.
That doesn't mean bypass trusts are "bad" or obsolete. They can still provide important benefits, including estate tax planning, asset protection, control over where assets ultimately pass, and planning for blended families.
It simply means the reason the provision was included should still match the family's goals today.
For David and Linda, for example, a mandatory split could place a significant portion of their assets into an irrevocable trust after the first death, even if their estate is nowhere near the federal estate tax threshold.
If the provision was included primarily to solve an estate tax problem they are unlikely to have, it may be worth revisiting.
What About Lifetime Gifting?
The higher exemption doesn't apply only at death. It also affects the amount of wealth an individual can transfer during life without paying federal gift tax.
In addition to the $15 million lifetime estate and gift tax exemption, individuals can make qualifying annual exclusion gifts of up to $19,000 per recipient in 2026 without using any of their lifetime exemption.
That means someone could potentially give $19,000 to each of several children or grandchildren in 2026 without reducing their $15 million lifetime exemption. Married couples may have additional opportunities when both spouses make gifts or elect to split gifts, although the rules should be reviewed with a tax professional.
For families interested in transferring wealth to children or grandchildren during life, whether to help with education, a home purchase, or simply to see loved ones benefit from an inheritance now, the current exemption provides significant planning opportunities.
But gifting isn't automatically better just because the exemption is high.
Giving appreciated property during life can have income tax consequences, including the loss of the basis adjustment that property may otherwise receive at death. And once you've given an asset away, you've generally given up control of it.
For that reason, lifetime gifting strategies should be coordinated with your estate planning attorney, CPA, and financial advisor based on your particular financial situation and goals.
Four Things Worth Doing Now
1. Review an older trust for mandatory tax-driven provisions.
If your trust was drafted years ago, look for provisions requiring assets to automatically divide into separate trusts after the first spouse dies. Don't assume those provisions are wrong, but make sure you understand why they're there and whether they still accomplish something you want.
2. Consider whether your estate is approaching the new federal threshold.
If your estate is approaching or exceeds the new exemption, talk with your estate planning attorney and CPA about whether lifetime gifting or other transfer tax planning makes sense.
3. Review the rest of your estate plan while you're at it.
Tax law changes are a good reminder to confirm that your beneficiary designations, powers of attorney, healthcare directives, trustees, guardians, and distribution instructions still reflect your family and your wishes.
4. Pay particular attention to older family members' plans.
If you serve or expect to serve as trustee or executor for a parent or relative, an older trust may contain tax driven provisions that operate automatically after death. Understanding those provisions before they're triggered can make administration much easier.
A Quick Q&A
"Does the $15 million exemption mean I don't need an estate plan?"
No.
The federal estate tax exemption determines how much wealth can generally pass without federal estate tax. It doesn't eliminate probate, provide incapacity planning, nominate guardians for minor children, protect beneficiaries, or determine who should manage your affairs if you cannot.
For most families, those issues are much more important than federal estate tax.
"My trust was drafted years ago. Do I need to start over?"
Not necessarily.
Depending on the document and the changes needed, an existing trust may be updated through an amendment or restatement. The important part is having the actual language reviewed against your current family circumstances, assets, goals, and current law.
"Does California have its own estate or inheritance tax?"
No. California currently imposes neither a state estate tax nor an inheritance tax.
For California residents, however, federal estate tax isn't the only tax consideration in estate planning. Income tax basis, capital gains, property taxes, retirement accounts, and other tax issues can sometimes be just as important, or more important, than federal estate tax.
"Should I start gifting assets because the exemption is $15 million?"
Maybe, but the exemption alone isn't a reason to give assets away.
Lifetime gifting can be an effective strategy for some families, particularly those with estates large enough to face future estate tax exposure. But gifting can also have income tax and cash flow consequences.
The right strategy depends on what you own, how much you need during your lifetime, your beneficiaries, your tax situation, and what you're ultimately trying to accomplish.
Make Sure Your Estate Plan Still Fits
We generally recommend reviewing an estate plan every three to five years, and sooner after a significant change in your family, finances, or the law.
The 2026 federal estate tax changes are a particularly good reason to pull out an older trust and take another look.
The goal isn't simply to have an estate plan. It's to have an estate plan that still works for your family, your assets, and today's law.
If your trust was created years ago or you aren't sure what happens when the first spouse dies, now may be a good time to schedule a review with our office.
We'll help you understand what your current documents actually do and whether the planning decisions that made sense when they were drafted still make sense for you today.
This article is provided for general educational purposes only and does not constitute legal or tax advice. Estate planning and tax laws are complex, and every family's circumstances are different. Please consult with a qualified estate planning attorney and tax professional regarding your individual situation.