We are ringing in 2026 with a change to the federal estate tax exemption. Understanding how estate and gift taxes are calculated and knowing the current exemption amounts are key components to a successful estate plan.
Background
As we have discussed numerous times on this blog and our Ag Law in the Field Podcast, Congress sets an amount of assets that a person is allowed to give during their lifetime or at death without incurring estate or gift tax liability. This is known as the lifetime exemption. The IRS adjusts the amount each year for inflation. Persons whose estate value is over the lifetime exemption will incur federal estate tax liability of 40% on the overage.
Additionally, federal tax law allows each taxpayer to gift a certain amount to another individual without incurring federal gift tax liability. This amount is known as the annual exclusion. This amount is critical for anyone utilizing gifting as part of their estate planning strategy.
[For more information on these taxes, read prior blog posts here and here and listen to prior podcast episode here.]
2026 Limits
With the passage of the One Big Beautiful Bill Act in July 2025, the 2026 estate tax exemption was set at $15 million/person ($30 million/couple), an increase of $1.1 million from the 2025 exemption amount. Importantly, without this provision in the OBBBA, the exemption amount would have sunset back to $5 million per person for 2026. The $15 million/person is set to adjust for inflation each year and does not have a sunset provision.
The federal gift tax annual exclusion will remain at $19,000, which was the same as the 2025 exclusion amount.
What does this mean for me?
Estate and gift taxes are an issue of which everyone should be aware. Everyone should have an idea of the fair market value of their estate. This is a critical first step in determining if someone could be facing an estate tax issue. Anyone who is even close to the lifetime exemption amount should be carefully planning their estate to seek to avoid this tax liability. There are a number of tools that can be used to avoid owing estate taxes, but all of them have to be done prior to a person’s death. This means it is critical for people to take action now to avoid owing this tax.
Additionally, people should take care when making gifts, whether monetary or of assets, and understand what gift tax implications those gifts may have. It should also be noted that gifts made over the annual exclusion will likely result in a decrease in the lifetime exemption a person has in the future.
The best advice is to have good advice. Folks should work with a good attorney and accountant to help determine if they could face estate tax liability to ensure there are no tax issues associated with making gifts during one’s lifetime.
