UPDATE: The feared TCJA sunset did not occur. The One Big Beautiful Act (OBBBA), enacted in 2025, permanently raised the federal estate and gift tax exemption to $15,000,000 per person ($30,000,000 per married couple with portability). The January 2027 'drop' to ~$7M this guide was originally written about was prevented by OBBBA. The 40% estate tax rate remains in effect on amounts above $15M. Couples with estates under $30M generally have no federal estate tax exposure. State estate taxes (Massachusetts, Oregon, Washington, etc.) are unaffected by OBBBA and remain in place at lower thresholds.
At a glance
Key Facts
OBBBA Outcome: $15M Permanent (2026+)
OBBBA (enacted 2025) raised the federal estate and gift tax exemption to $15,000,000 per person, $30,000,000 per married couple (portability election). The TCJA sunset that would have cut the exemption to ~$7M in 2027 was permanently repealed. The $15M exemption is now a permanent feature of the Internal Revenue Code — it will continue to apply in 2027, 2028, and beyond, indexed for inflation annually. Tax rate on amounts above $15M: flat 40%.
Who Is Affected Under the $15M Permanent Exemption
Under OBBBA: a married couple with a $25M estate pays $0 federal estate tax (under the $30M combined exemption with portability). A single individual with a $25M estate pays 40% on $10M above the $15M exemption = $4,000,000 federal estate tax. The households who still have federal estate tax exposure: single individuals with estates above $15M; married couples with estates above $30M. State estate taxes have much lower thresholds — Massachusetts ($2M), Oregon ($1M), Minnesota ($3M), New York ($7.16M) — and remain significant for residents of those states regardless of the federal exemption level.
IRS Anti-Clawback Rule — Still Relevant for Pre-2026 Gifts
IRS Final Regulations (TD 9884, November 2019) confirmed that gifts made under the TCJA-increased exemption (2018–2026) would not be subject to additional estate tax if the donor died after 2026 under a lower exemption. With OBBBA making the $15M exemption permanent, the anti-clawback rule is less operationally urgent — there is no longer a scheduled drop. However, it remains relevant for anyone who made large gifts between 2018 and 2025 under exemption amounts higher than the permanent $15M baseline: those prior gifts used exemption at the time-of-gift level and are protected from clawback if the donor later dies.
State Estate Taxes — An Additional Layer
Twelve states and the District of Columbia have their own state estate taxes: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and DC. State estate tax exemptions are often lower than the federal exemption. Massachusetts taxes estates above $2,000,000. Oregon taxes estates above $1,000,000. State estate taxes are not affected by the TCJA sunset — they are governed by state law and remain in place regardless of federal changes.
Annual Gift Tax Exclusion — Use Every Year
The annual gift tax exclusion allows tax-free gifts of $19,000 per recipient per year (2026). This is not part of TCJA and was not affected by the OBBBA changes. A couple can give $38,000/year to each child, grandchild, or other recipient without using any lifetime exemption. With 4 children and 8 grandchildren: $38,000 × 12 = $456,000/year transferred tax-free from the estate. Over 10 years: $4,560,000 removed from the estate through annual exclusion gifts alone.
529 Superfunding — Education Gifting Strategy
A unique 529 plan strategy: you can contribute 5 years of annual exclusion gifts to a 529 in one year (superfunding). In 2026: $19,000 × 5 = $95,000 per donor, $190,000 per couple, per beneficiary. This removes funds from the estate immediately (treated as having been made over 5 years for gift tax purposes) while growing tax-free inside the 529. A grandparent couple with 8 grandchildren could superfund $190,000 × 8 = $1,520,000 in one year using only annual exclusion gifts.
Introduction
Update — OBBBA resolved the sunset cliff. When this guide was written in early 2026, the Tax Cuts and Jobs Act of 2017 was scheduled to expire on December 31, 2026, cutting the estate tax exemption from $13.61M to approximately $7M per person. That sunset was widely expected to trigger significant estate tax exposure for millions of Americans. The One Big Beautiful Act (OBBBA), enacted in 2025, permanently raised the exemption to $15,000,000 per person and eliminated the TCJA sunset. The 'drop' described in this title did not happen — and is now permanently prevented. The estate planning strategies below remain valid tools for wealthy families, but the urgency of a December 31, 2026 deadline no longer applies. State estate taxes (Massachusetts $2M threshold, Oregon $1M, Washington $2.193M, Minnesota $3M, etc.) are unaffected by OBBBA and continue to matter for residents of those states.
Section 01
The Top 5 Strategies to Use Before December 31, 2026
The following strategies remain valuable for high-net-worth families even with the $15M permanent exemption — the December 31, 2026 deadline urgency no longer applies, but these tools reduce estate size and minimize state estate tax exposure. All should be implemented with an estate planning attorney — these are not DIY projects.
1. Spousal Lifetime Access Trust (SLAT)
A SLAT is an irrevocable trust created by one spouse for the benefit of the other spouse (and potentially children/grandchildren). The donor spouse transfers assets — using up to $13.6M of lifetime exemption — to the SLAT. The assets are out of the donor's estate. The beneficiary spouse can receive distributions from the trust, maintaining indirect access to the funds. A married couple can create two SLATs — each spouse creating one for the other — effectively using both spouses' exemptions. Risk: if the beneficiary spouse predeceases the donor spouse, access to trust funds ends. Best for: married couples with $14M–$27M estates who want to use both exemptions while maintaining some access to funds.
2. Grantor Retained Annuity Trust (GRAT)
A GRAT is an irrevocable trust where the grantor retains a fixed annuity payment for a term of years. At the end of the term, any remaining assets pass to beneficiaries estate-tax-free. If trust assets grow faster than the IRS 7520 rate (an assumed rate of return), the excess appreciation passes to heirs without using any exemption. Zero-out GRATs (where the annuity is set so the expected gift value is near $0) are particularly powerful in low-interest-rate environments. Best for: high-net-worth individuals with appreciated assets expected to outperform the IRS hurdle rate.
3. Irrevocable Life Insurance Trust (ILIT)
An ILIT holds a life insurance policy outside your taxable estate. At death, the insurance proceeds are paid to the trust (not your estate) and pass to beneficiaries without estate tax. Using annual exclusion gifts to fund premium payments keeps the premiums out of the estate. If you need life insurance for liquidity at death (e.g., to pay estate taxes on illiquid assets like real estate or a business), the ILIT is the standard mechanism. Best for: high-net-worth individuals with illiquid estate assets who need death benefit proceeds to avoid forced asset sales.
4. Direct Gifting to Heirs
The simplest strategy: use your remaining lifetime exemption to make outright gifts to children or other heirs before December 31, 2026. No trust required. Gift the maximum under your remaining exemption. Assets leave your estate permanently. Recipients receive a carryover basis (not a step-up at death) — so capital gains on appreciation accrue to them. Best for: simple estates, strong family trust, liquid assets without unrealised gains (cash, money market funds).
5. Charitable Remainder Trust (CRT)
For those with highly appreciated assets and charitable intent: a CRT transfers appreciated assets to a trust, provides you with an annuity income stream for life or a term, and leaves the remainder to a charity. You get an immediate charitable deduction, avoid capital gains on the transfer, and reduce your estate. Assets above the charitable remainder pass outside your estate. Best for: philanthropically inclined high-net-worth individuals with low-basis appreciated assets.
Section 02
Timeline: What to Do Before December 31, 2026
With OBBBA making the $15M exemption permanent, the December 31, 2026 urgency deadline no longer applies. Estate planning still follows a structured process — the timeline is now driven by estate size, liquidity, and state estate tax exposure rather than a federal sunset.
Step 1: Estate Assessment
Calculate your current taxable estate: add up all assets (home equity, investment accounts, retirement accounts, business interests, life insurance death benefits) and subtract debts. Determine how much remaining lifetime exemption you have (subtract prior taxable gifts from $15M). For federal purposes, single individuals under $15M and married couples under $30M have no immediate federal estate tax exposure. Residents of Massachusetts, Oregon, Minnesota, Washington, Rhode Island, and other states with separate estate taxes need to do the same analysis for state-level exposure.
Step 2: Strategy Selection and Attorney Engagement
Engage an estate planning attorney and CPA. Set strategy based on estate size, liquidity, family structure, charitable goals, and state of residence. SLATs, GRATs, ILITs, and direct gifting remain valid tools for reducing taxable estate size and eliminating state estate tax exposure — even without a federal exemption drop.
Step 3: Document Drafting and Execution
Attorney drafts trust documents. Review and revise. Execute and fund. Document all transactions with professional appraisals for non-cash transfers (required for gift tax reporting on Form 709).
Using the 2026 estate tax exemption — SLATs, GRATs, direct gifting, ILIT setup — requires coordinated CPA and estate attorney guidance. TaxHub connects you with high-net-worth tax specialists.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
What is the anti-clawback rule and how does it protect 2026 gifts?
IRS Final Regulations (TD 9884, 2019) provide that if a donor made gifts that used the TCJA-increased exemption and the donor dies when the exemption is lower, the IRS calculates the estate tax credit using the higher of: (a) the exemption at death, or (b) the exemption used at the time of the gift. With OBBBA making the $15M exemption permanent, the anti-clawback rule is less operationally urgent going forward — there is no longer a scheduled drop to trigger it. However, it protects gifts made between 2018–2026 under exemption levels higher than the OBBBA permanent baseline: those prior gifts used exemption at the time-of-gift level and are protected from any clawback if the donor later dies.
Q
Will Congress extend the TCJA and keep the higher exemption?
Congress did extend the higher exemption. The One Big Beautiful Act (OBBBA), enacted in 2025, permanently raised the federal estate tax exemption to $15,000,000 per person and repealed the TCJA sunset. The exemption is no longer scheduled to drop. The new $15M figure replaces the TCJA's $13.61M (2026) amount and is made permanent — indexed for inflation going forward. Gifting strategies implemented in 2026 or earlier under the TCJA exemption remain fully protected by the IRS anti-clawback rule.
Q
Does the exemption drop affect gifts I've already made in prior years?
No — the anti-clawback rule protects all gifts made under the TCJA higher exemption (2018–2026). If you made a $10M gift in 2022 and used $10M of exemption at that time, that gift is protected. Your remaining 2026+ exemption is $15M - $10M = $5M (under the OBBBA permanent level). Your estate at death will receive credit for the full $10M exemption used in 2022. Review your prior gift tax returns (Form 709) to determine how much of your lifetime exemption you have already used against the new $15M permanent baseline.
Q
My estate is worth $10M — am I affected by the exemption drop?
Under the OBBBA permanent exemption ($15M single), your $10M estate has no federal estate tax liability. The $1.2M of potential federal estate tax this guide originally described is no longer applicable — the exemption is $15M, well above your $10M estate. However, if you are a resident of a state with a lower estate tax threshold — Massachusetts ($2M), Oregon ($1M), Minnesota ($3M), Washington ($2.193M), New York ($7.16M) — you may have state-level estate tax exposure on a $10M estate. For a married couple with a $10M estate, you are well under both the federal $30M combined exemption and even most state exemptions. No immediate federal estate tax planning action is needed.
Q
What is portability and does it help with the exemption drop?
Portability allows a surviving spouse to use the unused federal estate tax exemption of their deceased spouse. Under OBBBA: if Spouse A dies in 2026 or later having used only $2M of their $15M exemption, Spouse B can 'port' the remaining $13M of Spouse A's unused exemption, giving Spouse B an effective combined exemption of up to $28M. Portability is not automatic — it must be elected on a timely filed estate tax return for the first spouse's estate (Form 706). Key limitation: portability only applies to the most recently deceased spouse's unused exemption. For very large estates (above $30M combined), trust planning (SLAT, GRAT, direct gifting) remains more powerful than relying on portability alone.
Q
Are retirement accounts (IRAs, 401ks) included in my taxable estate?
Yes — the full value of traditional IRA and 401(k) accounts is included in your taxable estate for federal estate tax purposes, even though beneficiaries must also pay income tax when they withdraw the funds (the double-tax trap). Roth IRAs are also included in your taxable estate but beneficiaries pay no income tax on withdrawals. For large estates with significant retirement account balances, estate tax planning for IRAs requires careful coordination with income tax planning — strategies include naming a charitable remainder trust as IRA beneficiary, making Roth conversions during your lifetime to reduce the IRA balance included in the estate, or using the IRA for charitable bequests (charities pay no estate or income tax on inherited IRA distributions).
Disclaimer:This guide provides general tax information for educational purposes only. Estate tax exemption amounts for 2027 are estimated based on current law and inflation assumptions. Congress may pass legislation modifying the TCJA sunset. This is not tax or legal advice. Consult an estate planning attorney and CPA for advice specific to your estate.