The One Big Beautiful Bill Act, signed July 4, 2025, permanently increased the federal unified estate, gift, and generation-skipping transfer (GST) tax exemption to $15,000,000 per individual ($30,000,000 for married couples via portability) effective January 1, 2026. The pre-OBBBA 2025 exemption was $13,990,000 per individual; without OBBBA, the exemption would have reverted to approximately $7,000,000 under the TCJA sunset on December 31, 2025. The new $15M exemption is PERMANENT in the legal sense - the Internal Revenue Code now sets the basic exclusion amount at $15M with annual inflation indexing from 2027 onward, and contains no sunset clause. Future Congress can change the amount only by passing new legislation. The 40% top marginal estate, gift, and GST tax rate remains unchanged. The §1014 step-up in basis at death is preserved. Portability rules under §2010(c) are unchanged (surviving spouse can still elect to use deceased spouse's unused exemption / DSUE). The annual gift tax exclusion under §2503(b) is $19,000 per recipient for 2026 (inflation-indexed; was $18,000 for 2024 and $17,000 for 2023). For estates above $15M, the 40% rate still applies; for those below, the entire estate passes federal-estate-tax-free with step-up basis to heirs. State-level estate taxes remain a significant issue in states like New York, Massachusetts, Connecticut, Illinois, Maine, Maryland, Minnesota, Oregon, Rhode Island, Vermont, Washington, and DC.
Pre-OBBBA 2025 exemption: $13,990,000 per individual (TCJA-doubled and inflation-indexed).
Pre-OBBBA scheduled 2026 (under TCJA sunset): Approximately $7,000,000 per individual (reverting to pre-TCJA level with inflation).
OBBBA permanent baseline: $15,000,000 per individual effective January 1, 2026.
Inflation indexing: Beginning 2027, indexed using 2025 as base year.
Married couples via portability: $30,000,000 combined (surviving spouse can elect DSUE on Form 706 for deceased spouse's unused portion).
Permanence: No sunset clause. Reduction requires affirmative legislation.
GST exemption: Also raised to $15,000,000 - aligns with unified exemption.
| Component | Detail |
|---|---|
| Basic Exclusion Amount (§2010(c)(3)(A)) | $15,000,000 effective 2026; OBBBA permanently revised the statutory amount |
| Inflation indexing | Beginning 2027 using 2025 as base year (annual CPI-U adjustment) |
| Applicable Credit Amount (§2010(a)) | 40% × $15,000,000 = $6,000,000 unified credit shielding $15M of taxable transfers |
| Cumulative lifetime / death use | Lifetime gifts reduce available exemption at death (unified system) |
| Top marginal rate | 40% on taxable transfers above the exemption (unchanged) |
| Estate tax under §2001 | Computed on taxable estate after deductions and exemption |
| Gift tax under §2501 | Annual on lifetime gifts above annual exclusion; cumulative against lifetime exemption |
| GST tax under §2601 | Imposed on transfers skipping a generation; 40% flat rate on excess over $15M GST exemption |
| Year | Annual Exclusion (Per Donor / Per Recipient) | Notes |
|---|---|---|
| 2023 | $17,000 | Pre-OBBBA inflation-adjusted |
| 2024 | $18,000 | Pre-OBBBA |
| 2025 | $19,000 | Pre-OBBBA |
| 2026 | $19,000 | Inflation-adjusted; unchanged from 2025 due to rounding mechanics |
| Gift splitting (MFJ) | $38,000 combined per recipient (each spouse contributes $19,000) | Form 709 required if gift-splitting elected |
| Non-citizen spouse annual exclusion | $190,000 for 2026 (separate from marital deduction; §2523(i)) | Inflation-indexed |
| 529 plan accelerated gift | $95,000 per donor (5 years × $19,000) | §529(c)(2)(B) - elect to treat as made over 5 years |
Annual exclusion gifts do NOT count against the $15M lifetime exemption. A couple with three children and six grandchildren (nine donees) can transfer $38,000 × 9 = $342,000 per year using only annual exclusions - separate from the $30M lifetime/death exemption. Over 10 years that's $3,420,000 of additional tax-free transfers (subject to inflation indexing).
Section 2010(c) portability allows a surviving spouse to use the deceased spouse's unused exemption (DSUE) on their own taxable transfers. OBBBA did NOT change portability rules.
| Portability Mechanic | Detail |
|---|---|
| How established | Surviving spouse files Form 706 for the deceased spouse and elects portability |
| Deadline (general) | Form 706 due 9 months after death; extension available; portability election is on the timely-filed return |
| Late portability election - Rev. Proc. 2022-32 | 5-year period from date of death to file Form 706 solely to elect portability (for estates not otherwise required to file) |
| DSUE calculation | Deceased spouse's basic exclusion amount LESS taxable estate LESS taxable gifts during life |
| Surviving spouse uses | DSUE applied to surviving spouse's lifetime gifts or estate; combined with surviving spouse's own exclusion |
| Multiple deceased spouses | "Last deceased spouse" rule - only DSUE from most recently deceased spouse available |
| GST exemption | NOT portable - GST exemption uses must be timely allocated |
| Remarriage effect | Surviving spouse who remarries preserves DSUE until new spouse predeceases (then that spouse becomes "last deceased") |
Facts: H dies January 2026 with $5,000,000 estate. W is sole beneficiary. H made no lifetime gifts above annual exclusions.
H's available exemption: $15,000,000.
H's taxable estate: $5,000,000 (assume no marital or charitable deduction issues).
H's used exemption: $5,000,000 (against own taxable estate).
H's DSUE: $15,000,000 - $5,000,000 = $10,000,000 available to W via portability election.
W's total exemption after election: W's own $15,000,000 + H's DSUE $10,000,000 = $25,000,000.
Required action: W must file Form 706 for H within 9 months (extendable; or use Rev. Proc. 2022-32 5-year late election) and check the portability election box.
A persistent concern under TCJA was whether lifetime gifts made when the exemption was high would be "clawed back" if the exemption later decreased. Treasury issued regulations under §2001(g) confirming there is no clawback - lifetime gifts using available exemption at time of gift are protected even if exemption later decreases. OBBBA preserves this no-clawback protection; gifts made under TCJA-era $13.99M exemption remain valid.
| Clawback Scenario | Treatment |
|---|---|
| Gift made 2024 using $13.61M of exemption | No clawback - exemption credit used at time of gift |
| Gift made 2025 using $13.99M of exemption | No clawback under §2001(g) regs |
| Gift made 2026 using $15M of exemption | No clawback risk - exemption is permanent |
| Future Congressional reduction | Lifetime gifts already made with prior exemption protected; only future transfers limited by new exemption |
For estates above state-level exemptions, state estate tax is a major issue independent of federal. State exemptions are often dramatically lower than the federal $15M:
| State | 2026 Estate Tax Exemption (verify annually) | Top Rate |
|---|---|---|
| New York | ~$7,160,000 (with cliff at 105% of exemption) | 16% |
| Massachusetts | $2,000,000 | 16% |
| Connecticut | Conforms to federal $15M | 12% |
| Illinois | $4,000,000 | 16% |
| Maine | ~$7,000,000 (inflation-indexed) | 12% |
| Maryland | $5,000,000 (plus inheritance tax) | 16% |
| Minnesota | $3,000,000 | 16% |
| Oregon | $1,000,000 | 16% |
| Rhode Island | ~$1,800,000 | 16% |
| Vermont | $5,000,000 | 16% |
| Washington | $2,193,000 | 20% |
| DC | ~$4,710,000 | 16% |
| Hawaii | $5,490,000 | 20% |
| Most other states | NO state estate tax | N/A |
| Strategy | Use Case |
|---|---|
| Spousal Lifetime Access Trust (SLAT) | Donor spouse gifts assets to irrevocable trust benefiting other spouse; uses exemption now but maintains indirect access through spouse-beneficiary. Risks: divorce, spouse death. |
| Intentionally Defective Grantor Trust (IDGT) | Irrevocable trust treated as grantor trust for income tax (grantor pays income tax = additional "tax-free" gift); transferred assets out of estate |
| Grantor Retained Annuity Trust (GRAT) | Grantor retains annuity for term; remainder passes to beneficiaries gift-tax-free if assets outperform §7520 rate |
| Qualified Personal Residence Trust (QPRT) | Grantor retains right to live in home for term; remainder to family at discounted gift value |
| Charitable Remainder Trust (CRT) | Grantor receives income stream for life; remainder to charity; provides income tax deduction now plus estate tax exclusion |
| Charitable Lead Trust (CLT) | Charity receives payments for term; remainder to family at discounted value; estate freeze technique |
| Family Limited Partnership (FLP) / FLLC | Discounted gifting through valuation discounts for lack of marketability and minority interest; under Treasury scrutiny but still viable with proper substance |
| Direct annual exclusion gifts | $19,000 per donee per donor per year - separate from lifetime exemption |
| Direct §2503(e) tuition/medical payments | Unlimited - paid directly to provider; not gifts at all |
OBBBA did NOT change §1014. Heirs continue to receive assets with basis equal to fair market value at date of death (or alternate valuation date under §2032 if elected). Lifetime gifts continue to carry over donor's basis under §1015.
| Transfer Type | Recipient Basis |
|---|---|
| Asset received at death (§1014) | FMV at date of death (or alternate valuation 6 months later if elected) |
| Lifetime gift (§1015) | Donor's basis (carry-over); donor's holding period also carries over |
| Gift with loss | Two-basis rule under §1015 - donee uses donor's basis for gain; FMV at gift for loss |
| Marital gift between spouses (§1041) | Carry-over basis - no recognition of gain/loss on transfer; §1041 marital transfer rule |
| Joint property at first spouse's death (community property) | FULL step-up on entire property under §1014(b)(6) for community property states |
| Joint property at first spouse's death (non-community property) | Step-up on 50% only (decedent's share) |
For estates well within the $15M exemption, the strategy SHIFTS from minimizing estate tax to maximizing step-up basis. Highly appreciated assets are best held until death (full FMV basis to heirs - no capital gain tax) rather than gifted (carry-over basis - heirs inherit potential gain).
| Asset Type | Holding Strategy Below $15M |
|---|---|
| Highly appreciated stock | Hold until death - full step-up wipes built-in gain |
| Appreciated real estate | Hold until death - step-up + depreciation reset for heirs |
| Depreciated assets (loss assets) | Sell before death or gift to recognize loss; basis steps DOWN if held to death |
| Closely-held business interests | Hold for step-up; potentially with §6166 estate tax deferral if business interest substantial |
| Retirement accounts (IRA, 401(k)) | NO step-up at death - distributions taxed to beneficiary as ordinary income under inherited IRA rules |
| GST Component | Detail |
|---|---|
| GST exemption (§2631) | $15,000,000 per individual in 2026 (aligned with unified exemption); inflation-indexed 2027+ |
| GST rate | 40% flat (top marginal rate) on transfers above exemption |
| NOT portable | Unlike unified exemption, GST exemption is NOT portable between spouses; must be allocated timely |
| Allocation | Automatic allocation to certain transfers under §2632; otherwise affirmative allocation on Form 709 |
| Skip person definition (§2613) | Person two or more generations younger than transferor (grandchild, great-grandchild) OR trust if all beneficiaries are skip persons |
| Direct skip | Outright transfer to skip person |
| Taxable distribution | Distribution from trust to skip person |
| Taxable termination | Trust beneficial interest terminates and remaining beneficiaries are all skip persons |
| Inclusion ratio | Mechanism for measuring portion of trust subject to GST tax (depends on exemption allocation) |
Estate plans built around TCJA's 2025 sunset cliff often used aggressive exemption-burning strategies. With OBBBA's permanent $15M, those plans may now be over-engineered:
| Pre-OBBBA Strategy | Post-OBBBA Reconsideration |
|---|---|
| Maxed-out SLAT prior to 2025 sunset | Used exemption pre-OBBBA; protected from clawback; but lost flexibility/access to gifted assets unnecessarily for sub-$15M estates |
| Large IDGT funded 2023-2025 | May have removed assets from estate when not needed; trust now holds assets in different vehicle |
| QPRT for primary residence | Residence transferred at term-end; original goal achieved; but may not have been necessary |
| GRATs run to capture out-of-estate appreciation | Continue to make sense for appreciating assets; mechanics unchanged |
| Family Limited Partnership | Valuation discounts still valuable for state estate tax states |
| Disclaimer trust for surviving spouse | Less needed for sub-$15M couples with portability; bypass trust mechanics may add complexity without benefit |
| NRA Estate/Gift Aspect | Treatment |
|---|---|
| NRA estate exemption | $60,000 (NOT $15M) - applies to US-situs assets only |
| NRA gift exemption | $0 lifetime exemption (annual exclusion only - $19,000 per donee for 2026) |
| NRA gift tax on US tangible property | Applies above annual exclusion |
| NRA gift tax on US intangible property (stocks/bonds) | Generally EXEMPT - intangibles not subject to NRA gift tax |
| Marital deduction with NRA spouse | NOT available - must use QDOT (Qualified Domestic Trust) under §2056A to defer estate tax on transfers to NRA spouse |
| QDOT requirements | US trustee; tax withholding; principal distributions trigger deferred estate tax |
| Tax treaties | Some treaties (Germany, France, UK, Canada, etc.) modify NRA estate tax |
Even estates well below $15M need step-up basis planning, probate avoidance, beneficiary designations, healthcare proxies, powers of attorney, and state estate tax mitigation (in 12 states + DC). The federal estate tax is no longer the primary issue for most clients, but estate planning remains essential.
For NY, MA, IL, OR, WA, and 7+ other states, state-level estate tax kicks in at far lower thresholds than federal. NY's "cliff" mechanism is particularly harsh - estates 105%+ above exemption lose entire exemption. State-specific planning required.
Surviving spouse must file Form 706 to elect portability - even if no estate tax due. Rev. Proc. 2022-32 provides 5-year late election window for non-filing estates. Missing this election can cost $30M of combined exemption.
GST exemption does NOT port to surviving spouse. Must be allocated affirmatively or under §2632 automatic allocation rules. Missed GST allocation costs the GST exemption irrevocably.
For sub-$15M estates, lifetime gifting forfeits §1014 step-up. Donee gets carry-over basis (§1015) instead of FMV step-up. For highly appreciated assets, HOLDING until death may be better than gifting.
Direct payments to educational institutions for tuition OR medical providers for medical care are NOT gifts under §2503(e). Unlimited amounts. Pre-funding grandchild education or paying parent's medical bills directly preserves both annual exclusion AND lifetime exemption.
Married couples can "split" gifts so each is treated as making half. $38,000 per donee combined annual exclusion. Form 709 required to elect gift-splitting.
Family Limited Partnership / FLLC interests can support 25-45% combined discounts for lack of marketability and minority interest. State estate tax still material for many; discounts remain valuable for state-level planning even when federal exemption is generous.
SLATs, IDGTs, and aggressive bypass-trust structures created for TCJA sunset may be over-engineered for $15M permanent. Decanting, modification, or distributions may be appropriate where rigid structures sacrifice flexibility unnecessarily.
NRA spouse marital transfers do NOT qualify for unlimited marital deduction. Use QDOT under §2056A. NRAs have only $60,000 estate exemption on US-situs assets. Multi-jurisdiction families require coordinated estate planning.
Primary authority: IRC §2010 (unified credit against estate tax). §2010(a) (applicable credit amount). §2010(c) (portability of deceased spouse's unused exemption - DSUE; unchanged by OBBBA). §2010(c)(3)(A) (basic exclusion amount - permanently set at $15,000,000 by OBBBA effective 2026; inflation-indexed 2027+). §2001 (imposition of estate tax; 40% top rate). §2001(g) (no-clawback regulations for prior gifts under higher exemption). §2032 (alternate valuation - 6 months after death). §2056 (marital deduction). §2056A (Qualified Domestic Trust for NRA spouse marital transfers). §2502 (imposition of gift tax). §2503 (taxable gifts). §2503(b) (annual exclusion - $19,000 per donee for 2026). §2503(e) (qualified transfers for tuition and medical care - unlimited, not gifts). §2505 (unified credit against gift tax). §2519 (treatment of certain transfers from QTIP trusts). §2523 (gifts to spouse). §2523(i) (non-citizen spouse annual exclusion - $190,000 for 2026). §2601 (imposition of GST tax). §2613 (skip person definition). §2631 (GST exemption - $15,000,000 in 2026, aligned with unified exemption, NOT portable). §2632 (allocation of GST exemption). §6166 (extension of estate tax for closely held business interests). §1014 (basis of property acquired from decedent - step-up to FMV at death, alternate valuation under §2032; preserved by OBBBA). §1014(b)(6) (community property full step-up). §1015 (basis of property acquired by gift - carry-over). §1041 (transfers between spouses - no gain/loss recognition). §529(c)(2)(B) (5-year accelerated 529 plan gift). §7520 (interest rate for valuing annuities, life estates, remainders). One Big Beautiful Bill Act, P.L. 119-21, signed July 4, 2025. OBBBA §70106 (permanent $15M estate/gift/GST exemption effective for decedents dying and gifts made after December 31, 2025; replaces TCJA sunset; inflation-indexed beginning 2027 using 2025 as base year). Treasury Regulations §20.2010-1 (DSUE mechanics). Rev. Proc. 2022-32 (5-year late portability election relief). Annual revenue procedures setting inflation-indexed amounts.