What is the federal estate tax exemption for 2026?

The federal estate tax exemption for 2026 is approximately $13.6 million per individual (indexed for inflation). Married couples can combine exemptions via portability, effectively shielding up to ~$27.2 million. However, the Tax Cuts and Jobs Act exemption is scheduled to sunset at end of 2025 unless Congress acts, potentially dropping the exemption to roughly $7 million per person. Monitor legislative developments closely.

How does the annual gift tax exclusion work in 2026?

In 2026 the annual gift tax exclusion is $18,000 per recipient (indexed; verify the current IRS figure). You can give $18,000 to as many people as you like each year with no gift tax and no filing requirement. Married couples can combine for $36,000 per recipient per year through gift-splitting.

What is estate tax portability and how do I use it?

Portability allows a surviving spouse to inherit the deceased spouse's unused federal estate tax exemption (the DSUE). To claim it, the estate must file a federal estate tax return (Form 706) within 9 months of death (or 15 months with extension) — even if no tax is owed. The DSUE then increases the surviving spouse's own exemption.

Do all states have estate taxes?

No. As of 2026, around 12 states and Washington D.C. have their own estate or inheritance taxes, often with exemptions far lower than the federal threshold — some as low as $1 million. States like Oregon, Massachusetts, and Washington impose estate taxes; Pennsylvania and Iowa impose inheritance taxes on heirs. State planning is as important as federal planning for many families.

When should I hire an estate planning attorney versus a CPA?

You typically need both. An estate planning attorney drafts the legal documents (will, trusts, powers of attorney), while a CPA or tax advisor handles the tax strategy, gift tax returns (Form 709), and estate tax returns (Form 706). For estates above $5 million, or with business interests, foreign assets, or complex family situations, both professionals are essential — not optional.

Estate Tax & Gift Tax Planning Strategy 2026

The 2026 estate tax landscape is at a crossroads. The elevated exemptions created by the 2017 Tax Cuts and Jobs Act were set to sunset at the end of 2025, but legislation has extended or modified them. Regardless of where the law ultimately lands, one truth remains: families who plan ahead consistently pay less than those who don’t.

This guide covers how the US federal estate and gift tax system works, what the 2026 numbers mean for your family, and the core strategies used by estate planning professionals to preserve wealth across generations.

How the US Estate and Gift Tax System Works

The federal transfer tax system is unified — meaning estate and gift taxes share a single lifetime exemption. Think of it as a lifetime credit that covers both gifts during life and transfers at death.

The Unified Credit Concept

Every US citizen gets a lifetime exclusion (also called the “applicable exclusion amount”). In 2026, this is approximately $13.6 million per individual (subject to inflation indexing and any legislative changes).

Gifts you make during life reduce this lifetime exclusion dollar for dollar
Whatever exemption remains at death shelters your estate from federal estate tax
Amounts above the exemption are taxed at a flat 40% rate

Annual Gift Tax Exclusion — The “Free Pass”

Separate from the lifetime exemption, you can give up to $18,000 per recipient per year (2026 figure, subject to indexing) completely free of gift tax and without touching your lifetime exemption.

No gift tax return (Form 709) required for gifts at or below the annual exclusion
Gift to as many people as you like — 10 children, 20 grandchildren, etc.
Married couples can “split” gifts: $36,000 per recipient per year combined

Over a decade, a couple with 3 children can transfer $36,000 × 3 × 10 = $1.08 million completely tax-free through annual exclusion gifts alone.

2026 Key Numbers at a Glance

Item	Amount (2026 estimate)
Federal estate tax exemption (per person)	~$13.6 million
Federal estate tax exemption (married couple, w/ portability)	~$27.2 million
Annual gift tax exclusion	$18,000 per recipient
Annual exclusion for gifts to non-citizen spouses	~$185,000
Top federal estate/gift tax rate	40%

Important: The TCJA exemption was scheduled to revert to ~$7 million (inflation-adjusted) after 2025. Verify current law with your advisor before making decisions based on this guide.

Portability — The Surviving Spouse’s Powerful Tool

Portability is one of the most impactful planning tools for married couples — and one of the most commonly missed.

What Is Portability?

When the first spouse dies, any unused portion of their federal estate tax exemption (called the Deceased Spousal Unused Exclusion, or DSUE) can be transferred to the surviving spouse.

How to Claim It

You must file Form 706 (the federal estate tax return) within 9 months of death, even if no tax is owed. Extensions to 15 months are available. Miss this deadline without a late portability election and the DSUE is generally lost.

Why It Matters

Without portability: a couple with a $15 million estate and one death might lose the first spouse’s exemption entirely.

With portability: the surviving spouse can have a combined exemption of $27+ million, potentially eliminating federal estate tax entirely on a moderately sized estate.

The Gift Tax Lookback — Why Timing Matters

Unlike some countries (see the Korean 10-year rule), the US gift tax and estate tax are fully unified — gifts made during life reduce the lifetime exemption and are tracked via Form 709.

Three-Year Inclusion Rule

Certain transfers within 3 years of death are pulled back into the taxable estate:

Life insurance policy transfers (if the decedent held incidents of ownership)
Retained interests released within 3 years of death (IRC §2035)
Revocable trust assets (since they were never truly “given away”)

Why Plan Gifts Early?

The earlier you give assets that are likely to appreciate, the more appreciation escapes estate taxation. A $1 million gift that grows to $3 million over 20 years removes $3 million from your estate — but you only used $1 million of your exemption.

This “appreciation shifting” is one of the most powerful compounding benefits of early gifting.

Valuation Strategies — Discounts That Reduce Tax

Valuation is where sophisticated estate planning creates significant savings.

Minority Interest Discounts

When you transfer a partial (minority) interest in a closely held business or family limited partnership (FLP), that interest may be worth less than a proportionate share of the whole — because a minority owner can’t control the business.

Typical combined discounts for lack of control and lack of marketability: 20–40% of the undiscounted value (varies by facts and IRS scrutiny).

Example: A 30% interest in a business valued at $10 million would proportionally be worth $3 million. With a 35% combined discount, the taxable value drops to $1.95 million — saving estate tax on $1.05 million of value.

Qualified Opportunity Zone (QOZ) Investments

Gains invested in Qualified Opportunity Funds receive tax deferral, potential exclusion, and stepped-up basis benefits — making them useful in estate planning for capital gain-heavy assets.

Trust Structures That Reduce Estate Taxes

Trusts are the workhorses of estate planning. Here are the most commonly used for tax reduction:

Irrevocable Life Insurance Trust (ILIT)

Life insurance proceeds are normally included in your taxable estate if you own the policy. By placing the policy in an ILIT:

Death benefit passes to heirs estate-tax free
The trust can purchase assets from the estate, providing liquidity
Trustee pays premiums using annual exclusion gifts from you

Spousal Lifetime Access Trust (SLAT)

A SLAT allows you to make a gift to an irrevocable trust while your spouse is a beneficiary — effectively removing assets from your estate while still allowing indirect access through your spouse.

Uses your lifetime exemption today (locking in higher exemption before potential sunset)
Assets and future appreciation removed from estate
Requires careful design to avoid “reciprocal trust doctrine”

Grantor Retained Annuity Trust (GRAT)

You transfer assets into a GRAT, receive annuity payments for a term of years, and at the end the remaining assets (ideally appreciated beyond a IRS hurdle rate) pass to heirs with little or no gift tax.

Best used when interest rates are low and assets are expected to appreciate significantly
“Zeroed-out” GRATs use a term that produces no taxable gift
Risk: if you die during the GRAT term, assets return to your estate

Charitable Remainder Trust (CRT) / Charitable Lead Trust (CLT)

CRT: You receive income for life; at death, remainder goes to charity. You get an estate deduction and income tax charitable deduction upfront.
CLT: Charity receives income for a term; at the end, heirs receive remaining assets with reduced gift/estate tax.

State Estate Taxes — Don’t Forget the Second Bill

Federal estate tax affects relatively few Americans (estates above ~$13.6 million). State estate taxes affect many more.

States With Estate or Inheritance Taxes (as of 2026)

States with estate taxes: Oregon, Washington, Massachusetts, Maryland, Illinois, Minnesota, New York, Hawaii, Maine, Vermont, Connecticut, Rhode Island, Washington D.C.

States with inheritance taxes (heirs pay, not estate): Pennsylvania, New Jersey, Nebraska, Kentucky, Iowa, Maryland.

Some exemptions are as low as $1 million. In Oregon, the top rate hits 16% on estates above $9.5 million. In Massachusetts, anything above $2 million is taxable.

Planning tip: Some retirees move from high-estate-tax states to no-estate-tax states (Florida, Texas, Nevada, etc.) in their final years. This requires establishing genuine domicile — more than just owning property.

International Considerations

Non-Citizen Spouses

The unlimited marital deduction does not apply to a non-citizen spouse. The annual gift tax exclusion to a non-citizen spouse is ~$185,000 (2026), not unlimited. To provide the full marital deduction at death, assets must pass through a Qualified Domestic Trust (QDOT).

Foreign Assets

US citizens and domiciliaries are subject to US estate tax on worldwide assets — whether the asset is a bank account in Switzerland or real estate in Spain. Foreign estate taxes may provide a foreign tax credit to prevent full double taxation.

Foreign Nationals Owning US Assets

Non-US domiciliaries are subject to US estate tax only on US-situs assets (US real estate, US stocks), with a tiny $60,000 exemption. This creates significant planning needs for foreign nationals with US investment portfolios.

Common Estate Planning Mistakes

Skipping portability election: Filing Form 706 only to pay taxes — missing the deadline when no tax is owed and losing DSUE forever
Outdated beneficiary designations: IRAs, 401(k)s, and life insurance pass by beneficiary designation — not your will
Failing to fund the trust: Creating a revocable living trust but never transferring assets into it
Joint tenancy default: Putting everything in joint tenancy eliminates planning flexibility and can trigger unintended gifts
Ignoring state taxes: Planning only for federal taxes when you live in a state with a $1M exemption
Waiting too long: Exemptions can change with legislation; acting before a sunset or change locks in benefits
DIY estate plans: Online templates often miss jurisdiction-specific rules, update requirements, and funding steps

When to Hire an Estate Planning Attorney vs. CPA

You Need an Estate Planning Attorney For:

Drafting wills, trusts, powers of attorney, healthcare directives
Designing complex trust structures (SLAT, GRAT, ILIT)
Business succession agreements
Probate avoidance strategies

You Need a CPA or Tax Advisor For:

Preparing Form 709 (gift tax return) — required when gifts exceed the annual exclusion
Preparing Form 706 (estate tax return) after a death
Income tax planning inside trusts
Coordination of estate plan with income tax strategy

For estates above $5 million, expect to work with both — and potentially a financial planner who specializes in estate planning as well. The cost of professional advice is almost always dwarfed by the tax savings.

Key Action Steps for 2026

Review and update all beneficiary designations (IRA, 401k, life insurance)
Confirm your estate attorney has filed for portability if a spouse died recently
Make annual exclusion gifts ($18,000 per recipient) before year-end
Consider accelerating larger gifts before any legislative sunset
If you have a closely held business, get a professional valuation
Check your state’s estate tax rules — and whether domicile planning makes sense

Estate Tax & Gift Tax Planning Strategy 2026 — Complete US Guide