Estate Tax Exemption Sunset Planning After the 2026 Law Change

By Sophia Evans, Wealth & Tax Strategy Editor
Reviewed for technical accuracy by a CPA and estate-planning attorney on our editorial review panel.
Jurisdiction note: this article covers United States federal estate and gift tax law only. State estate and inheritance taxes are separate, vary widely, and are not addressed here.

Two clients came to the same estate planning meeting in early 2025 with almost identical net worths. One rushed to gift $10 million into an irrevocable trust before year-end, worried the exemption would fall by half on January 1, 2026. The other waited. By late 2025 it was clear the second client had lost nothing, because the scheduled reduction never arrived. The first client did not lose anything either, thanks to a set of regulations most people have never heard of. Both outcomes were fine. The decision-making process that got them there, though, is what this guide is actually about.

Should You Use the Exemption Now or Wait? A Decision Framework

Start with the fact pattern, not the fear. The 2026 federal basic exclusion amount is $15,000,000 per individual, up from $13,990,000 in 2025, and it is now scheduled to rise only with inflation, not to fall off a cliff. That single change resets almost every “use it or lose it” article written before mid-2025. The urgency is lower. It is not zero.

Notice what is missing from that second column: a countdown clock. That is the real story of 2025 and 2026. The pressure that drove thousands of rushed year-end gifting transactions in 2025 was based on a deadline that Congress erased in July of that year.

The Current Exemption, and How the Sunset Almost Happened

Here is the amount that matters most right now: estates of people who die in 2026 have a federal basic exclusion amount of $15,000,000, up from $13,990,000 for 2025, according to the IRS’s own inflation-adjustment release for tax year 2026. That is the number to anchor every planning conversation to going forward, not the older $13.99 million figure and not the smaller number that almost took its place.

The backstory explains why so many advisors were nervous through most of 2025. The 2017 Tax Cuts and Jobs Act (TCJA) roughly doubled the exemption starting in 2018, moving it from about $5.49 million in 2017 to $11.18 million in 2018. That doubling was written into the law as temporary. Absent further action, it was due to expire after December 31, 2025, sending the exemption back down toward the original, inflation-adjusted base of around $5 million. Multiple estate planning commentators pegged that reversion figure at roughly $7 million per person once inflation was applied, though because the sunset never actually occurred that number remained an estimate rather than a real, tested amount.

Congress intervened before that happened. The One Big Beautiful Bill Act, signed into law on July 4, 2025, raised the exemption to $15 million per individual starting in 2026 and, critically, removed the sunset provision entirely. The exemption does not revert. It continues to be indexed for inflation each year going forward, the same way it had been indexed during the TCJA years, just without an expiration date hanging over it.

Worth saying plainly: this is a real, enacted change, not a proposal or a forecast. It sits in Public Law 119-21. Anyone still writing about a looming 2026 estate tax cliff based on pre-2025 assumptions is describing a scenario that no longer exists.

Use-It-or-Lose-It Planning in a World Without a Sunset

The phrase “use it or lose it” dominated estate planning content for the better part of a decade. It described a genuine risk under the TCJA’s original structure. It is a weaker argument today, but it is not a useless one, for two reasons.

First, permanent is a legal word, not a political guarantee. A future Congress can amend the exclusion amount at any time; nothing in the tax code is immune from a later statute. Second, and more mundanely, gifting still removes future growth from your taxable estate even when the exemption itself is not shrinking. A $10 million gift today that grows to $16 million in a decade sits entirely outside your estate. The same $10 million, left in your estate and grown to $16 million, is fully exposed to estate tax at your death.

That growth-shifting logic is the actual reason wealthy families keep gifting assets into irrevocable trusts, separate from any sunset deadline. Grantor trusts are one of the primary vehicles people use to actually lock in a larger estate tax exemption before any future reduction, because the trust freezes the gifted asset’s value for estate tax purposes on the date of the gift, while the grantor keeps paying income tax on the trust’s earnings out of pocket, which itself is an additional tax-free transfer to the beneficiaries. Our related guide on grantor trust planning strategy walks through how GRATs, IDGTs, and spousal lifetime access trusts each use that mechanic differently.

So the planning question is not really “will I lose the exemption.” It is closer to “how much of my future asset growth do I want inside or outside my taxable estate.” That is a less urgent question than a ticking clock, but for a fast-growing portfolio it can matter just as much in dollar terms.

Portability: What Happens to a Married Couple’s Unused Exemption

Married couples get a second lever that single filers do not: portability. When the first spouse dies, any exemption that spouse did not use can be transferred to the surviving spouse as a Deceased Spousal Unused Exclusion, commonly shortened to DSUE.

Portability is not automatic. The executor of the first spouse’s estate must file a federal estate tax return, Form 706, and make the portability election on it, even if the estate is well under the filing threshold and owes no tax. Skip that filing and the unused exemption is simply gone. Practices vary, but a competent estate attorney will generally recommend filing for portability by default in any marriage where the first spouse’s estate has any meaningful unused exemption, since the cost of preparing the return is small next to the exemption it can preserve.

Once locked in, a surviving spouse’s DSUE amount is fixed at the first spouse’s date of death. It does not grow with inflation the way the surviving spouse’s own exemption does. A couple that plans carefully around this distinction, rather than assuming portability behaves exactly like the underlying exemption, avoids a quiet but common mistake.

The Anti-Clawback Regulations: Why Gifts Made Under a Higher Exemption Stay Safe

This is the regulatory piece that made 2025’s frantic year-end gifting rational instead of risky, and it deserves more attention than it usually gets.

Back in November 2019, the Treasury Department finalized regulations, published as T.D. 9884, addressing a specific fear: what happens to someone who makes a large taxable gift while the exemption is high, then dies after the exemption has dropped. Without a special rule, the IRS could apply the lower, later exemption when calculating the final estate tax bill, effectively clawing back the benefit of the earlier gift. The final regulations rejected that outcome. They direct the IRS to use the greater of the credit available at death or the credit that was actually used to shelter prior gifts. In practice, if you gift $9 million while the exemption sits at $13.99 million, and the exemption later falls to $7 million before you die, your estate still gets credit for the full $9 million you already used.

The regulations also settled a related question for couples: a surviving spouse’s DSUE amount, once received, is measured at the deceased spouse’s date of death and is not reduced later if the general exemption drops. Both protections mattered enormously while the 2026 sunset was still scheduled to occur. They still matter now, because they establish the general principle that a future rollback, if one ever happens, would not retroactively punish gifts already made. That is a meaningfully different risk profile than most people assume.

Do Not Forget the Generation-Skipping Transfer Tax Exemption

One more figure travels alongside the estate and gift exemption, and advisors sometimes mention it only in passing: the generation-skipping transfer (GST) tax exemption. It applies when assets move to grandchildren or later generations, either directly or through certain trusts, and it is set at the same dollar amount as the basic exclusion. For 2026, that means a GST exemption of $15,000,000 per individual, up from $13,990,000 in 2025.

The GST exemption did not carry the same anti-clawback protection language as the estate and gift exemption until Treasury addressed it more narrowly in later guidance, so trusts designed to skip a generation deserve their own review whenever the underlying exemption changes. A trust drafted in 2019 to use a $11.4 million GST allocation, for instance, should be checked against the current $15 million figure to see whether additional allocation is available, rather than assumed to be fully optimized on autopilot.

Families using dynasty trusts, in particular, tend to layer GST planning on top of ordinary estate and gift planning. Treat the two together. A plan that only tracks the estate exemption while ignoring the GST allocation on the same trust can leave real money on the table across multiple generations.

Federal Exemption Amount by Year: A Sourced Reference Table

The table below tracks the federal basic exclusion amount from just before the TCJA doubling through the 2026 change. Figures for 2018 through 2026 come from the IRS’s annual inflation-adjustment revenue procedures and the IRS’s 2026 inflation-adjustment release; the 2017 figure predates the TCJA.

Read that table against what almost happened. Without the July 2025 law change, 2026’s exemption was widely projected to fall to roughly $7 million per person rather than climb to $15 million. The chart below puts the enacted numbers next to that never-realized projection.

A Worked Example: Two Ways to Approach the Same $20 Million Estate

Consider a married couple, both age 62, with a combined net worth of $20 million, none of it previously gifted. Under the 2026 rules, their combined exemption is $30 million, so on paper they owe no federal estate tax if both die today. The interesting question is what happens if their assets, mostly a concentrated business interest, grow at 8 percent a year for the next fifteen years.

Path one: they do nothing. Fifteen years of 8 percent growth turns $20 million into roughly $63 million. Even with the exemption climbing at an assumed 2.5 percent annual inflation adjustment to around $21.7 million per person, or $43.4 million combined, by year fifteen, the estate would exceed the combined exemption by close to $20 million, taxed at a 40 percent top rate. That is a rough $8 million tax bill their heirs would not otherwise owe.

Path two: they gift $10 million into an irrevocable trust today, using a portion of each spouse’s exemption, and let that $10 million grow outside the estate at the same 8 percent. Fifteen years later that trust holds roughly $31.7 million, entirely outside both estates. The remaining $10 million left inside the estate grows to about $31.7 million as well, but with a much larger share of the couple’s now-inflated combined exemption still available to absorb it, the taxable overhang shrinks dramatically, in many versions of this scenario to close to zero.

The numbers move around depending on your growth assumptions and the discount you might apply for a minority, non-controlling business interest. The direction of the result does not move around. Getting appreciation out of the estate early is worth more, in dollar terms, than the exemption’s own inflation adjustment, whenever your assets are compounding faster than that adjustment. For this couple’s 8 percent growth rate against a roughly 2.5 percent inflation adjustment, that gap compounds into millions of dollars over fifteen years.

Common Mistakes That Still Show Up in 2026 Planning

• Treating $15 million as a hard ceiling for a married couple. The real number for spouses is closer to $30 million combined, before any portability from a prior marriage is even added.
• Forgetting to file for portability. An estate under the filing threshold still needs a timely Form 706 if the surviving spouse wants to preserve the DSUE.
• Assuming a 2018 irrevocable gift is now at risk. The anti-clawback regulations already protect it; there is nothing left to “fix” retroactively.
• Ignoring the gift tax annual exclusion. At $19,000 per recipient for 2026, a couple with four children and their spouses can move $152,000 a year with zero exemption used at all.
• Assuming state estate tax follows federal law. A number of states impose their own estate or inheritance tax with exemptions far below the federal $15 million figure, so a plan built only around federal thresholds can still trigger a state-level bill.

A Practical Planning Checklist

Use this as a starting point for a conversation with your advisor, not a substitute for one.

• Confirm your combined net worth against the current $15 million (single) or $30 million (married) federal threshold, including life insurance proceeds and business valuations.
• Check whether your state imposes its own estate or inheritance tax, and at what threshold.
• Review any existing irrevocable trusts to confirm how much exemption you have already used and how it was reported on prior gift tax returns.
• Decide, with your advisor, whether your asset growth rate justifies gifting now versus letting the inflation-indexed exemption keep pace on its own.
• If married, put a standing instruction in place to file Form 706 and elect portability at the first spouse’s death, regardless of whether the estate owes tax.
• Revisit the plan every two to three years. An exemption that moves with inflation still moves, and a plan built for $13.99 million looks different at $15 million or beyond.

Key Takeaways

Frequently Asked Questions

Did the estate tax exemption sunset actually happen in 2026?

No. The scheduled reduction was repealed before it took effect. The One Big Beautiful Bill Act, signed July 4, 2025, set the 2026 federal basic exclusion amount at $15 million per person and removed the sunset provision that would have reduced it.

What is the federal estate tax exemption for 2026?

$15,000,000 per individual, or $30,000,000 for a married couple through portability and combined exemptions, according to the IRS’s 2026 inflation-adjustment release.

Do I still need to worry about a future reduction in the exemption?

A future Congress could change the law again; nothing in a statute is permanently immune from later amendment. Under current law, though, there is no scheduled reduction, and any prior gifts you have already made are protected from retroactive clawback by existing Treasury regulations.

What is portability and do I need to file anything for it?

Portability lets a surviving spouse use a deceased spouse’s unused exemption. It is not automatic. The deceased spouse’s estate must file Form 706 and make the portability election, even if no estate tax is otherwise due.

Are gifts I made in 2020 or 2021 at risk if the exemption ever drops later?

No. Final IRS regulations from November 2019 confirmed that your estate gets credit for the higher exemption amount that was in effect when you made the gift, even if the general exemption is lower by the time you die.

Does the $15 million federal exemption cover state estate taxes too?

No. It only governs federal estate and gift tax. A number of states apply their own estate or inheritance tax with separate, often much lower, exemption thresholds, so check your specific state’s rules as well.

References

• Internal Revenue Service, “IRS releases tax inflation adjustments for tax year 2026, including amendments from the One, Big, Beautiful Bill,” IRS.gov newsroom release, 2025.
• One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025.
• Arnold & Porter, “Increases to the Federal Estate and Gift Tax Exemption Under the One Big Beautiful Bill Act (OBBBA),” advisory, July 2025 (secondary analysis).
• Morgan Lewis, “IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2026,” client alert, October 2025 (secondary analysis).
• U.S. Treasury Department / Internal Revenue Service, Treasury Decision 9884, final regulations on the anti-clawback rule, November 2019.
• Journal of Accountancy, “Final regs. eliminate estate and gift tax clawback,” news analysis, November 2019 (secondary analysis).
• Kiplinger, “The Estate Tax Exemption Amount for 2026,” tax guide, 2025-2026 (secondary analysis, historical exemption table).
• LegalClarity, “Estate Tax Exemption Sunset 2026: What the New Law Changed,” 2025 (secondary analysis, pre-OBBBA reversion estimate).