A Major Shift in Estate Tax Planning
For years, families braced for a scheduled drop in the federal estate tax exemption. The Tax Cuts and Jobs Act of 2017 had roughly doubled the exemption, but that increase came with an expiration date. Without new legislation, the exemption would have reverted to pre-2018 levels at the start of 2026. That looming deadline shaped estate planning conversations for nearly a decade, and many families rushed to make large gifts before the window closed.
Then Congress changed course. The One Big Beautiful Bill Act, signed into law in July 2025, eliminated the scheduled reduction entirely. Instead of falling back to roughly $7 million per person, the exemption actually increased. This shift reshaped the planning landscape for high-net-worth families almost overnight. It’s worth understanding exactly what changed, why it happened, and what families should do now that the rules have settled.
What the Exemption Looked Like Before the Change
Under the TCJA, the federal estate and gift tax exemption climbed to $13.99 million per individual by 2025, thanks to annual inflation adjustments. Married couples could combine exemptions to shield nearly $28 million from federal estate tax. That generous threshold meant most American families never came close to owing federal estate tax at all.
Still, the increase was never permanent. Lawmakers built the TCJA with a sunset provision, meaning the higher exemption would expire unless Congress acted before the end of 2025. Estate planning attorneys spent years warning clients about this cliff. Families with estates near or above the projected post-sunset threshold often accelerated their gifting strategies, worried that waiting too long could cost them millions in future tax exposure.
This uncertainty pushed many people toward irrevocable trusts and large lifetime gifts. Advisors frequently recommended locking in the higher exemption before it disappeared. That advice made sense at the time, since nobody could predict with confidence whether Congress would extend the provision, let it expire, or replace it with something new entirely.
What Actually Changed in 2026
Rather than allowing the exemption to shrink, the One Big Beautiful Bill Act raised it further. Starting January 1, 2026, the federal lifetime estate and gift tax exemption rose to $15 million per individual, or $30 million for a married couple. This new figure isn’t just a temporary bump. Congress made it permanent, with annual inflation adjustments beginning in 2027.
According to guidance published by the Internal Revenue Service, the exemption amount will continue adjusting for inflation each year going forward, similar to how it worked under the previous law. The key difference now is that there’s no scheduled expiration date hanging over future calculations. Families can plan with far more confidence than they could just a year earlier.
The annual gift tax exclusion, which allows individuals to give money to any number of people each year without touching their lifetime exemption, remained steady at $19,000 per recipient for 2026. Married couples can combine their exclusions to give up to $38,000 per person annually. While that figure didn’t change dramatically, it still plays an important role in long-term wealth transfer strategies.
Why This Change Matters for Most Families
With the exemption now permanently set at $15 million per individual, the overwhelming majority of American estates fall well below the federal threshold. This means most families won’t owe federal estate tax at all, regardless of how their assets grow over the coming years. That’s a significant relief compared to the anxiety many people felt while the sunset provision loomed.
However, permanent doesn’t mean untouchable. Tax law can always change again if Congress decides to revisit it. Families with estates approaching the threshold, or those who expect significant asset growth, still benefit from proactive planning. Business owners in particular should stay alert, since company valuations can shift quickly and unexpectedly push an estate above the exemption line. Anyone building a plan around company assets might benefit from estate tax planning strategies designed for business owners, since those approaches often differ from strategies built for simpler estates.
It’s also worth remembering that this change applies only at the federal level. State estate taxes operate independently, and many states maintain exemption thresholds far lower than the federal amount. A family that owes nothing federally could still face a state tax bill, depending on where they live. Anyone trying to sort out how these two systems interact might benefit from understanding why estate tax and inheritance tax aren’t the same thing, since the terminology and rules vary significantly from state to state.
How This Affects Gifting Strategies
Before the OBBBA passed, many advisors pushed clients to “use it or lose it,” encouraging large gifts before the exemption dropped. Now that the higher exemption is permanent, that urgency has faded somewhat. Families no longer need to rush major gifting decisions out of fear that the window will slam shut at year’s end.
That said, gifting still makes sense for many households, just for different reasons. Removing future appreciation from a taxable estate remains a smart strategy, especially for assets expected to grow significantly over time. Real estate, business interests, and investment portfolios can all appreciate substantially over a decade or two. Gifting these assets early, while values are lower, can shield future growth from estate tax entirely.
Trusts also remain a valuable tool, even with the higher exemption in place. Irrevocable trusts, generation-skipping trusts, and other structures continue to offer benefits beyond simple tax avoidance, including asset protection and control over how heirs receive their inheritance. The permanent exemption gives families more breathing room to design these structures thoughtfully, rather than rushing to beat a deadline.
What This Means for Long-Term Planning
Because the exemption now adjusts annually for inflation, families should expect the threshold to creep upward each year. This gradual increase offers some natural protection against estate tax exposure, even for growing estates. Still, relying solely on inflation adjustments isn’t a substitute for an actual plan.
Coverage from Kiplinger notes that estates exceeding the threshold still face a steep tax rate, with amounts above the exemption taxed at 40 percent. While the current exemption feels secure, future Congresses could revisit these thresholds again, whether to raise them further, lower them, or restructure the tax entirely. Families who build flexible estate plans, ones that can adapt to policy changes, tend to fare better than those who assume today’s rules will last forever.
Regular reviews remain essential, even under a permanent exemption. Life changes, such as marriage, divorce, or the birth of a grandchild, can shift priorities and require updates to trusts, wills, or beneficiary designations. Asset values change too, sometimes unpredictably, especially for families holding business interests or concentrated stock positions.
Steps Families Should Take Now
With the immediate threat of a lower exemption gone, families have an opportunity to plan more deliberately rather than reactively. This starts with a thorough review of current asset values compared against the new $15 million threshold. Anyone close to that number, or expecting significant growth, should talk with an estate planning attorney about strategies that reduce future exposure.
Next, families should examine any gifting or trust strategies they started under the old rules. Some of these plans may have been designed around the assumption that the exemption would drop in 2026. Now that it hasn’t, certain strategies might need adjustment to better reflect the current law and long-term goals.
Finally, families shouldn’t ignore state-level exposure. Even with a generous federal exemption, state estate or inheritance taxes can still apply, sometimes at surprisingly low thresholds. Coordinating federal and state strategies together offers the clearest path toward preserving wealth for future generations.
Looking Ahead
The estate tax exemption didn’t shrink after 2026, as so many expected for years. Instead, it grew and became permanent, offering families more certainty than they’ve had in nearly a decade. That said, permanent under current law doesn’t mean unchangeable forever. Political and economic conditions shift, and tax policy tends to follow.
Families who stay engaged with their estate plans, rather than treating them as a one-time task, put themselves in the best position no matter what changes come next. Whether that means reviewing trust structures, adjusting gifting strategies, or simply confirming that current plans still align with today’s exemption levels, staying proactive remains the smartest approach to protecting a family’s legacy.
