Estate & Gift Tax Exemption

The federal estate and gift tax system is unified: a single lifetime exemption applies across taxable gifts made during life and transfers at death, with a flat 40 percent rate on amounts exceeding it. The generation-skipping transfer tax exemption, which addresses transfers to grandchildren and more remote descendants, is set at the same amount but must be allocated separately.

The One Big Beautiful Bill Act permanently set the exemption at $15 million per individual beginning January 1, 2026, indexed for inflation thereafter. This resolved a planning question that had dominated the field for years - the TCJA-doubled exemption had been scheduled to sunset after 2025, cutting the exemption roughly in half and prompting a substantial volume of accelerated gifting. With the higher amount now permanent, planning has shifted from urgency-driven transfers toward basis and income tax considerations. Married couples effectively access double the exemption. Portability, elected on a timely filed Form 706 for the first spouse to die, allows the deceased spousal unused exclusion amount to transfer to the survivor - and because portability requires a filing even when no tax is due, an estate below the threshold often still needs a return.

Annual exclusion gifts, indexed and currently in the high teens of thousands of dollars per donee per year, do not consume lifetime exemption and are reported on Form 709 only when required. Payments made directly for another person's medical care or tuition are excluded without limit.

Practically, planning now emphasizes techniques such as grantor retained annuity trusts, intentionally defective grantor trusts, valuation discounts for closely held interests, and coordinating the step-up in basis at death against the transfer tax cost of lifetime gifting.