Congress passed sweeping legislation in 2025 that includes many changes to tax policy, spending, and entitlement programs. One of the most significant changes for estate planning is an increase in the federal estate and gift tax exclusion. This guide explains the federal estate and gift tax rules that apply in 2026, who has to worry about them, and how we got here, since the law changed more than once over the last fifteen years.
The 2026 Federal Estate and Gift Tax Numbers
| Item | 2026 amount |
|---|---|
| Federal estate and gift tax exclusion (basic exclusion amount) | $15,000,000 per person; $30,000,000 for a married couple using both exclusions |
| Annual gift tax exclusion | $19,000 per recipient; $38,000 for spouses who give jointly |
| Annual exclusion for gifts to a spouse who is not a U.S. citizen | $194,000 |
| Top federal estate and gift tax rate | 40% on amounts above the exclusion |
| Estate tax return (Form 706) required if the gross estate plus adjusted taxable gifts exceeds | $15,000,000 |
| Texas estate or inheritance tax | None |
| North Carolina estate or inheritance tax | None |
The federal figures come from the IRS: the IRS announcement of the 2026 inflation adjustments (Revenue Procedure 2025-32), What’s New: Estate and Gift Tax, and the IRS estate tax page. The 40 percent top rate is in section 2001(c) of the Internal Revenue Code. I explain the Texas and North Carolina entries below.
Estate and Gift Tax Exclusion Increased Again
The Tax Cuts and Jobs Act (“TCJA”), which set the estate tax exclusion at $10,000,000, adjusted annually for inflation, was scheduled to be cut in half after 2025, raising concerns for clients with significant wealth.
The good news for these clients is that this reduction will not occur. The One Big, Beautiful Bill” (OBBB) signed into law in 2025 raised the basic exclusion amount to $15,000,000 per person, or $30 million for married couples, beginning in 2026. The exclusion is adjusted for inflation each year.
This means that high net-worth families can transfer even more wealth during life or at death without incurring federal estate or gift taxes.
How the Federal Estate Tax Works
The federal estate tax is a tax on the transfer of a person’s property at death. The IRS describes the gross estate as an accounting of everything you own or have certain interests in at the date of death, and it generally includes non-probate property such as life insurance and retirement accounts as well as probate property.
The estate tax applies only to the amount above your exclusion subtracting allowed deductions, such as debts, funeral and administration expenses, charitable gifts, and transfers to a spouse who is a U.S. citizen. I walk through that calculation in How Do I Figure Out the Value of My Estate for Estate Tax Purposes?
Estate Tax Remains a Non-Issue for Most Families
Because the filing threshold is $15 million per person ($30 million for a couple), the federal estate tax is not a concern for most families. However, if you have significant wealth, you need proactive planning.
Planning is also important for those who may reach that estate tax threshold through appreciating assets, life insurance policies, or business interests. The death benefit of a life insurance policy you own is counted in your gross estate, so a family that does not think of itself as wealthy may cross the line. An irrevocable trust owning the policy can keep it out of the estate (see What Is an Irrevocable Life Insurance Trust?).
The Gift Tax and the Annual Exclusion
The gift tax works together with the estate tax. For 2026, you can give up to $19,000 to each person without any gift tax reporting. A married couple who give jointly can exclude $38,000 per recipient. Some gifts are not taxable at all: gifts to a U.S. citizen spouse qualify for the marital deduction, and tuition and medical expenses you pay for someone else are not gifts, as long as you pay the school or the medical provider directly (Instructions for Form 709).
You file a gift tax return, Form 709, by April 15 of the year after the gift if you gave more than the annual exclusion to someone other than your spouse, if you and your spouse split gifts, or if you made a gift of a future interest. Filing a return usually does not mean you owe tax. Gifts above the annual exclusion use up part of your $15 million basic exclusion, because the same credit amount offsets both the gift tax and the estate tax (sections 2505 and 2010 of the Internal Revenue Code), and gift tax is due only after you have used it all.
It’s the donor, not the recipient of the gift, who is responsible for paying any gift tax. For more on how much you can give, see How Much Money Can I Give Without Paying Gift Tax?, and for gifts to a trust that qualify for the annual exclusion, see What Is a Crummey Trust?
Portability for Married Couples
Portability lets a surviving spouse use whatever part of the first spouse’s exclusion went unused, called the deceased spousal unused exclusion (DSUE) amount.
The estate of the spouse who dies first has to elect it on an estate tax return that is filed on time, which means the return is due nine months after death, or fifteen months with the extension. Because a Form 706 can be required for the election even when the estate owes nothing, it is easy to overlook.
Portability does not replace all trust planning. See Does Portability Make Bypass Trusts Obsolete? for when a bypass trust still makes sense.
Texas and North Carolina Do Not Have Their Own Estate or Inheritance Tax
Texas. Texas does not have a state estate tax or inheritance tax. Texas used to collect a tax on property transferred at death under Tax Code Chapter 211. The amount of the state tax equaled the amount of the federal credit for state death taxes. This type of tax, commonly called a “pickup” or “sponge” tax, let the state collect a share of money that would otherwise go to the federal government, without raising the estate’s total tax bill. The Economic Growth and Taxpayer Relief Reconciliation Act of 2001 (EGTRRA) phased out the state death tax credit from 2002 to 2004, eliminating it completely for 2005. Because the Texas tax was tied to the federal credit, it disappeared with it. It was not collected on dates of death on or after January 1, 2005. Texas chose not to replace the lost revenue with its own estate tax. For more, see Does Texas Have an Inheritance Tax?
North Carolina. North Carolina repealed its estate tax for decedents dying on or after January 1, 2013 (Session Law 2013-316, Part VII). North Carolina is also not among the handful of states that collect an inheritance tax.
A resident of Texas or North Carolina can still run into another state’s tax, because some states tax the estate or inheritance of property located there, or inherited from a person who lived there. If you own real estate in another state or expect to inherit from someone who lived in one, ask about it.
Capital Gains Tax on Inherited Property
Federal estate tax is separate from income tax. Under section 1014 of the Internal Revenue Code, property you inherit generally takes a basis equal to its fair market value on the date of death (IRS). That is the “step-up in basis,” and it can wipe out capital gains tax on appreciation that built up during the decedent’s life. See Does Property Passed by Transfer on Death Deed Receive a Step-Up in Basis?
Why This Still Matters
Although the exclusion increase is now considered “permanent,” it is important to remember that Congress can change the law at any time. Future legislation could reduce the exemption again, creating uncertainty for wealthy families.
For that reason, it is best to view today’s rules as an opportunity, not a guarantee. The 2025 law removed the pressure to make large gifts before the end of 2025, but it does not mean planning for estate taxes is unnecessary.
Next Steps for High Net Worth Families
If you expect the value of your estate to approach or exceed the exclusion, here are some proactive steps to consider:
- Review your current estate plan to make sure your documents still reflect your financial situation and long-term goals. Formula clauses written when the exclusion was $1 million or $5 million can produce results you never intended.
- Consider strategic lifetime gifts. Gifts can remove future appreciation from your taxable estate, and using your exclusion during life makes sense for some families but not others.
- Plan for business interests and insurance. Family businesses, investment growth, and life insurance proceeds can all push estates above the threshold.
- If you are married, make sure the portability election is not overlooked after the first spouse dies.
- Stay flexible: build an estate plan that can adapt to future law changes.
A Short History: How the Estate Tax Got Here
If you read news about the estate tax from 2009 to 2018, much of it is out of date. I have written about the estate tax over the past twenty years, as the law kept changing. Those articles have now been folded into this one. Here is what happened:
| Year | Federal basic exclusion | What changed |
|---|---|---|
| 2009 | $3,500,000 | Top rate 45% above the exclusion (IRS Form 706 instructions, 2009). |
| 2010 | $5,000,000 (executor could elect no estate tax and carryover basis instead) | The 2001 law repealed the estate tax for 2010. A December 2010 law then set a $5,000,000 exclusion and 35% rate for 2010 deaths, but let executors elect no estate tax with modified carryover basis. |
| 2011 | $5,000,000 | Portability introduced. Top rate 35%. |
| 2012 | $5,120,000 | |
| 2013 | $5,250,000 | The American Taxpayer Relief Act of 2012 made the exclusion permanent and set the top rate at 40%. |
| 2014 | $5,340,000 | |
| 2015 | $5,430,000 | |
| 2016 | $5,450,000 | |
| 2017 | $5,490,000 | |
| 2018 | $11,180,000 | The Tax Cuts and Jobs Act roughly doubled the exclusion for 2018 through 2025. |
| 2019 | $11,400,000 | |
| 2020 | $11,580,000 | |
| 2021 | $11,700,000 | |
| 2022 | $12,060,000 | |
| 2023 | $12,920,000 | |
| 2024 | $13,610,000 | |
| 2025 | $13,990,000 | Scheduled to be cut roughly in half in 2026 under the 2017 law. |
| 2026 | $15,000,000 | One Big Beautiful Bill (OBBB) raises the exclusion and removes the scheduled cut. |
Sources: IRS, What’s New: Estate and Gift Tax (2011 through 2026), and the IRS Instructions for Form 706 for 2009 and 2010.
2009 to 2010: The Year With No Estate Tax
Under the 2001 tax law, known as EGTRRA, the federal estate tax exemption rose gradually and the top rate fell, reaching a $3.5 million exemption and a 45 percent rate in 2009. The law then repealed the tax for 2010. The repeal was temporary. Without new legislation, the tax would have returned in 2011 with a $1 million exemption and a top rate of 55 percent.
For most of 2010, Congress did nothing, and families, lawyers, and the media argued about what would happen. Some called the repeal the “Throw Momma From the Train Act,” because the heirs of a very wealthy person who died in 2010 stood to gain.
In December 2010, Congress passed a new law that applied retroactively to the entire year and gave executors a choice.
Option 1: Use the new rules. The estate could be taxed under the reinstated estate tax, with a $5 million exclusion and a 35 percent rate. Heirs received the usual step-up in basis, meaning inherited property was valued at its worth on the date of death for purposes of figuring later capital gains. This was the default if the executor did nothing.
Option 2: Elect out. The executor could instead choose to owe no estate tax by filing IRS Form 8939. In that case, heirs received a modified carryover basis rather than a full step-up. This meant they generally took over the decedent’s original cost basis, adjusted upward by a limited allowance ($1.3 million in general, plus an additional $3 million for property passing to a surviving spouse). If heirs later sold appreciated property, they could owe income tax on the gain.
The best option depended on the size of the estate and how much its assets had appreciated.
The repeal also created a trap for couples whose plans used formula bypass trusts. Many estate plans directed “the maximum amount that can pass free of federal estate tax” into a bypass trust. In a year with no estate tax, that formula could be read to place the entire estate in the trust. In a second marriage, where the bypass trust benefited children of the first marriage, this could leave the surviving spouse with far less than intended, or nothing at all.
2011 to 2017: Portability and a Permanent Law
The December 2010 law reset the exemption at $5 million and introduced portability, and the 2012 law made it permanent. After years of uncertainty, my message to clients was that we finally had a stable law, with the reminder that “permanent” means only that there is no expiration date. Congress can change it, and it did in 2017 and again in 2025.
2018 to 2025: The Doubled Exclusion
The Tax Cuts and Jobs Act, signed December 22, 2017, roughly doubled the exclusion beginning in 2018, but it had a sunset: if Congress did nothing, the exclusion would revert to the $5 million level, adjusted for inflation, on January 1, 2026. That sunset is what the 2025 law removed.
Other Tax Changes in the New Tax Bill
The 2025 tax bill includes many other provisions beyond the estate tax. One of my favorite tax writers, Kelly Phillips Erb (Taxgirl), has a helpful article in Forbes answering common questions about the new law. You can read it here: Questions About The New Tax Bill? Taxgirl Has Answers.
Planning Ahead Gives You Options
Although federal estate tax will not affect most families, tax laws evolve, and proactive planning helps ensure your legacy is protected under both today’s and tomorrow’s rules.
If you have questions about how these changes might affect your estate plan, I encourage you to reach out. I am happy to review your documents, explain your options, and help you build a strategy that protects your family and preserves your wealth. Schedule a free introductory conference.
