Estate Tax in 2026: What High-Net-Worth Families Must Know

Posted by James Burns | Jul 25, 2026 | 0 Comments

Estate tax is imposed on the transfer of wealth at death. It is generally calculated by determining the value of the decedent's gross estate, subtracting available deductions, accounting for prior taxable gifts, and applying the available estate and gift tax exclusion.

For 2026, the federal estate and gift tax basic exclusion amount is $15 million per individual. A married couple may potentially protect as much as $30 million, but only through properly coordinated planning. The top federal estate, gift, and generation-skipping transfer tax rate remains 40%.

Public Law 119-21, commonly known as the One Big Beautiful Bill Act, increased the statutory basic exclusion amount to $15 million for gifts made and deaths occurring after December 31, 2025. Unlike the prior law, the new provision has no scheduled sunset. The amount is scheduled to be indexed for inflation beginning after 2026.

For families holding substantial real estate, closely held businesses, retirement accounts, life insurance, private investments, or assets in multiple states, the federal exemption is only the beginning of the analysis. Estate tax planning must also account for:

State estate and inheritance taxes
Income-tax basis
Asset appreciation
Life insurance ownership
Liquidity at death
Generation-skipping transfer tax
Business succession
Trust funding and administration
The citizenship and domicile of each spouse
Real property situated outside California

The objective is not merely to reduce estate tax. It is to transfer wealth with the least avoidable tax, administrative friction, creditor exposure, and loss of family control.

What Are the Federal Estate and Gift Tax Rules for 2026?

The principal federal transfer-tax figures for 2026 are:

Federal tax provision	2026 amount or rule
Estate and gift tax basic exclusion amount	$15,000,000 per individual
Potential combined exclusion for a married couple	Up to $30,000,000 with proper planning
Generation-skipping transfer tax exemption	$15,000,000 per transferor
Top estate, gift, and GST tax rate	40%
Annual gift-tax exclusion	$19,000 per recipient
Annual exclusion for gifts to a noncitizen spouse	$194,000
General Form 706 filing deadline	Nine months after death
Automatic filing extension	Six months when properly requested

The IRS has confirmed both the $15 million federal filing threshold and the $19,000 annual gift-tax exclusion for 2026.

How Is the Federal Estate Tax Calculated?

The calculation generally begins with the gross estate, which can include:

Real estate
Bank and brokerage accounts
Closely held business interests
Partnership and limited liability company interests
Retirement accounts
Tangible personal property
Annuities
Certain trust interests
Certain jointly owned property
Life insurance proceeds when the decedent retained incidents of ownership
Certain lifetime transfers brought back into the estate under the Internal Revenue Code

Allowable deductions may include qualifying debts, administration expenses, charitable transfers, and transfers qualifying for the marital deduction.

The estate tax computation also accounts for adjusted taxable gifts made during life. Consequently, the $15 million amount is a unified lifetime and death-time exclusion. It is not a separate $15 million lifetime gift exemption plus another $15 million estate-tax exemption.

A taxable estate above the available exclusion is subject to a graduated rate schedule that reaches 40%.

When Is Form 706 Required?

A federal estate tax return, IRS Form 706, is generally required when the decedent's gross estate plus adjusted taxable gifts exceeds the filing threshold for the year of death.

The return is normally due nine months after death. An executor may request an automatic six-month extension of time to file by timely submitting Form 4768. An extension to file does not automatically extend the deadline to pay the tax.

Even when the estate is below the filing threshold, Form 706 may still be valuable or necessary for:

Electing portability
Reporting and substantiating asset values
Making a qualified terminable interest property election
Electing alternate valuation when permitted
Allocating generation-skipping transfer tax exemption
Establishing values relevant to beneficiary basis
Starting the limitations period for reported estate-tax positions

How Does Portability Work in 2026?

Portability allows a surviving spouse to use the deceased spouse's unused federal estate and gift tax exclusion, known as the deceased spousal unused exclusion amount, or DSUE.

Portability is one of the most valuable elections available to married couples, but it is frequently misunderstood.

Portability Is Not Automatic

The deceased spouse's executor must generally file a complete and properly prepared Form 706 and elect portability. When a timely return is required, it is due nine months after death unless an extension is obtained.

An estate that was not otherwise required to file Form 706 may qualify for simplified late-election relief under Revenue Procedure 2022-32. That procedure generally permits an eligible estate to file for portability on or before the fifth anniversary of the decedent's death. Relief outside that procedure may require a private letter ruling and is not guaranteed.

Portability Does Not Automatically Produce $30 Million

A married couple does not receive a single joint $30 million exemption.

The surviving spouse receives only the deceased spouse's actual unused exclusion. Prior taxable gifts, taxable transfers, or other estate-tax calculations can reduce the amount transferred.

Portability also generally applies only to the DSUE of the surviving spouse's last deceased spouse. Remarriage and the death of a later spouse can therefore alter the available amount.

Portability Does Not Transfer the GST Exemption

The federal generation-skipping transfer tax exemption is not portable. A deceased spouse's unused GST exemption cannot simply be added to the surviving spouse's exemption.

Dynasty trusts and trusts benefiting grandchildren or more remote descendants therefore require separate GST analysis and appropriate exemption allocation.

For a more detailed California discussion, see What Orange County Trust Owners Need to Know About A/B Trusts and Portability.

What Gifting Strategies Are Available in 2026?

Lifetime gifting can remove assets—and their future appreciation—from the taxable estate. It can also create income-tax costs, surrender control, or expose assets to beneficiary risks. Gifts should therefore be evaluated asset by asset rather than treated as an automatic tax solution.

Annual Exclusion Gifts

The 2026 annual gift-tax exclusion is $19,000 per recipient.

A married couple may potentially transfer $38,000 to the same recipient by using each spouse's exclusion. Gift splitting may require a Form 709 even when no gift tax is ultimately payable.

Annual exclusion treatment generally requires a completed gift of a present interest. Transfers to trusts may require properly administered withdrawal rights or another qualifying structure.

A gift above $19,000 does not necessarily cause immediate gift tax. The excess generally uses a portion of the donor's lifetime exclusion and may require Form 709 reporting.

Direct Educational and Medical Payments

Payments made directly to a qualifying educational institution for tuition or directly to a qualifying medical provider for medical care may fall outside the annual exclusion and lifetime gift-tax system under Internal Revenue Code Section 2503(e).

The payment must be made directly to the provider. Reimbursing a child or grandchild after that person pays the expense generally does not produce the same result.

Five-Year 529 Plan Election

A donor may elect to treat up to five years of annual exclusions as made ratably over five years for a qualified tuition program contribution.

With a $19,000 annual exclusion, one donor can contribute as much as $95,000 for one beneficiary in 2026. A married couple using both exclusions may potentially contribute $190,000.

A gift-tax return is generally required to make the five-year election. If the donor dies before the five-year period ends, a proportionate amount may be included in the donor's estate.

Should Appreciated Property Be Gifted or Held for a Basis Adjustment?

Estate-tax planning and capital-gains planning can pull in opposite directions.

Property acquired from a decedent generally receives a basis adjustment under Internal Revenue Code Section 1014. The beneficiary's basis is usually the property's fair market value on the applicable valuation date.

By contrast, property transferred by lifetime gift generally retains the donor's basis for determining gain. This is commonly called carryover basis.

Example

Assume a parent bought investment property for $500,000 and it is now worth $3 million.

If the parent gives the property to a child during life, the child may generally receive the parent's $500,000 basis. A later sale for $3 million could produce approximately $2.5 million of taxable gain before adjustments, exclusions, and transaction expenses.

If the property remains includible in the parent's gross estate and passes at death, its basis may adjust to its date-of-death value. A prompt sale near that value may result in little capital gain.

This does not mean every appreciated asset should be retained. If the property is expected to appreciate rapidly and the estate is likely to be taxable at 40%, removing the future appreciation may produce a larger overall benefit.

The proper comparison includes:

Expected appreciation
Remaining lifetime
Estate-tax exposure
Federal and California capital-gains exposure
Depreciation and recapture
Cash flow requirements
Asset-control objectives
Creditor and beneficiary risks
Whether the asset will be included in the taxable estate
Whether valuation discounts are legally and factually supportable

IRS Revenue Ruling 2023-2 also confirms that assets in a completed-gift grantor trust do not receive a Section 1014 basis adjustment merely because the grantor paid the trust's income tax when the assets are not included in the grantor's gross estate.

See Gifting Assets Now vs. Holding for a Step-Up and California Capital Gains Tax on Estates: 2026 Guide for related analysis.

Which Irrevocable Trusts Can Reduce Estate-Tax Exposure?

Irrevocable trusts are not interchangeable products. Each structure solves a different transfer, control, tax, liquidity, or beneficiary-protection problem.

Grantor Retained Annuity Trusts

A grantor retained annuity trust, or GRAT, allows the grantor to transfer appreciating property while retaining a fixed annuity for a specified term.

If the trust assets outperform the applicable Section 7520 rate, the excess appreciation may pass to the remainder beneficiaries with little or no additional gift-tax cost.

GRATs are commonly considered for:

Concentrated stock positions
Pre-liquidity business interests
Assets temporarily depressed in value
Investments with substantial appreciation potential

The grantor must survive the GRAT term to obtain the intended estate-tax result. Valuation, administration, annuity payments, and asset selection are critical.

See Grantor Retained Annuity Trusts: An Introduction.

Irrevocable Life Insurance Trusts

An irrevocable life insurance trust, or ILIT, can own life insurance outside the insured's taxable estate when properly structured and administered.

The important distinction is between:

A policy purchased initially by the ILIT; and
An existing policy transferred by the insured to the ILIT.

When an insured transfers an existing policy and dies within three years, Internal Revenue Code Section 2035 may pull the proceeds back into the insured's gross estate. The three-year rule does not mean every ILIT-owned policy must be in force for three years. A properly designed ILIT purchasing a new policy from inception can present a different result.

The insured must also avoid retaining incidents of ownership. Premium gifts, withdrawal notices, trustee independence, policy administration, and access to cash value require careful coordination.

See Irrevocable Life Insurance Trusts: A Comprehensive Guide.

Intentionally Defective Grantor Trusts

An intentionally defective grantor trust, commonly called an IDGT, is designed so that:

The transfer is complete for estate and gift tax purposes; but
The grantor remains responsible for income tax attributable to the trust.

The grantor's payment of the trust's income-tax liability is generally not treated as an additional gift because the tax is legally the grantor's obligation. This can allow the trust to grow without being depleted by income-tax payments.

An IDGT may be funded by gift, sale, or a combination. Sales require defensible valuation, sufficient trust equity, commercially reasonable terms, proper documentation, and disciplined administration.

The income-tax grantor status of the trust does not, standing alone, cause the trust property to receive a basis adjustment at the grantor's death.

Spousal Lifetime Access Trusts

A spousal lifetime access trust, or SLAT, allows one spouse to make a completed gift to an irrevocable trust that may benefit the other spouse and descendants.

A SLAT can remove assets and future appreciation from the donor spouse's estate while preserving indirect family access through the beneficiary spouse. It nevertheless introduces substantial risks involving:

Divorce
Premature death of the beneficiary spouse
Reciprocal trust doctrine
Loss of control
Trustee discretion
Community-property characterization
Basis loss
Creditor rights
Administration and documentation

Spouses should not create mirror-image trusts without detailed reciprocal-trust analysis.

How Does Charitable Planning Affect Estate Tax?

Transfers to qualifying charitable organizations may qualify for a federal estate-tax charitable deduction. Properly structured charitable bequests can therefore reduce the taxable estate.

Lifetime charitable planning may also provide an income-tax deduction, but the rules are separate.

Beginning in 2026, an individual who itemizes deductions generally may deduct qualifying charitable contributions only to the extent aggregate contributions exceed 0.5% of the taxpayer's contribution base. That limitation concerns the individual income-tax deduction; it should not be confused with the estate-tax charitable deduction.

Potential charitable structures include:

Outright charitable gifts
Charitable bequests
Donor-advised funds
Charitable remainder trusts
Charitable lead trusts
Private foundations

The correct structure depends on whether the family seeks a current income stream, an immediate deduction, long-term family governance, charitable control, estate reduction, or some combination.

Which States Impose Estate or Inheritance Taxes?

The federal exemption does not protect an estate from separate state death taxes.

As of 2026:

Twelve states and the District of Columbia impose an estate tax
Five states impose an inheritance tax
Maryland imposes both

An estate tax is generally imposed on the estate. An inheritance tax is generally imposed based on the beneficiary receiving the property.

California does not currently impose a separate modern estate or inheritance tax. California families may nevertheless face:

Federal estate tax
California fiduciary income tax
California capital-gains tax
Proposition 19 property-tax reassessment
State death tax on property situated elsewhere
Domicile disputes involving another state

Examples of State-Level Exposure

Oregon: An Oregon estate return may be required when the total value of estate assets is $1 million or more and the estate contains property taxable by Oregon.

New York: The 2026 basic exclusion amount is $7.35 million. New York's exclusion credit phases out for estates exceeding the threshold, and the credit is eliminated once the estate exceeds 105% of the basic exclusion amount. New York also has rules adding back certain taxable gifts made within three years of death.

Massachusetts: The filing threshold is $2 million for deaths on or after January 1, 2023. A credit of up to $99,600 eliminated tax for estates at or below $2 million and mitigated the former cliff effect.

Washington: Washington changed its estate-tax exclusion and rates during 2025 and 2026. The applicable rules must be verified using the precise date of death rather than relying on an old national chart.

Real or tangible personal property situated in another state can create state filing or tax exposure even when the decedent was domiciled in California. Ownership through an entity may change the characterization of the property, but the structure must have legal substance and be respected in operation.

What Estate-Tax Planning Traps Should Families Avoid?

Missing or Ignoring Form 706

Failure to evaluate portability after the first spouse's death can waste valuable exclusion. Even when no federal estate tax is due, the family should document whether a portability return was considered and why it was or was not filed.

Treating Portability as a Substitute for Trust Planning

Portability does not:

Transfer unused GST exemption
Protect appreciation after the first death
Protect assets from creditors
Control distributions to descendants
Preserve assets from remarriage risk
Replace state estate-tax planning
Guarantee the availability of an earlier spouse's DSUE after remarriage

A bypass or credit-shelter trust may still serve important tax and non-tax purposes.

Transferring an Existing Life Insurance Policy Too Late

An existing policy transferred within three years of death may be brought back into the taxable estate. Having the ILIT purchase a properly designed new policy from inception may avoid that specific transfer problem, although underwriting, premium funding, and incidents-of-ownership rules still apply.

Failing to Allocate GST Exemption

A trust may be outside the children's estates yet still be exposed to GST tax when distributions are made to grandchildren or when a taxable termination occurs.

GST exemption allocation must be coordinated with the trust terms, automatic-allocation rules, Form 709 reporting, valuation, and the intended inclusion ratio.

Giving Away the Wrong Assets

A lifetime gift may remove appreciation from the estate but also transfer carryover basis. Highly appreciated real estate, stock, and business interests should not be gifted until the projected estate-tax savings are compared with the income-tax cost.

Assuming an Irrevocable Trust Receives a Step-Up

Assets outside the grantor's gross estate generally do not receive a basis adjustment merely because the trust is a grantor trust for income-tax purposes.

Relying on Outdated State-Tax Charts

State thresholds, rates, addback rules, QTIP elections, domicile rules, and nonresident property rules change independently of federal law. Every state-tax statement should be date-stamped and confirmed with the applicable state authority.

Assuming a Higher Federal Exemption Makes Existing Trusts Obsolete

A trust created under an earlier exemption regime may still provide:

Creditor protection
Remarriage protection
Separate-property preservation
Control over descendants' inheritances
GST planning
Business continuity
State estate-tax protection
Professional management
Protection for beneficiaries with disabilities or impaired judgment

The correct response is a review, not automatic termination.

The Planning Shift Many Families Get Wrong

The $15 million exemption has removed the immediate federal sunset deadline that drove much of the planning completed before 2026. That does not mean tax planning is finished.

It means the analysis must become more precise.

A family should no longer make a large gift merely because it fears an imminent statutory reduction. The planning team can compare:

Estate-tax savings
Capital-gains consequences
Basis adjustment
Expected growth
Cash-flow needs
Asset-control objectives
Family governance
State tax
Creditor protection
The likelihood of future legislative change

The real issue is not whether an estate is above or below $15 million today. It is where the estate may be at death after appreciation, retained earnings, business growth, life insurance, real estate inflation, and accumulated retirement assets.

A $10 million estate growing at 7% annually can approach $20 million in approximately ten years, before accounting for spending, gifting, taxes, or additional contributions. Families near the current threshold therefore require projection rather than a static net-worth calculation.

For a broader California review, see the California Estate Tax Planning Checklist for 2026 and Estate Plan for $10 Million or More: 2026 Strategy Guide.

How The Law Office of James Burns Approaches High-Net-Worth Estate-Tax Planning

Estate-tax planning for a family with $5 million to $100 million in assets requires more than a will and a revocable living trust.

At the lower end of that range, the immediate federal estate-tax risk may be limited, but appreciation, California real estate, business growth, income-tax basis, beneficiary protection, probate, and state-situs property can materially change the result.

James Burns Law uses the FortressWall Methodology™ to coordinate:

Exposure mapping
Ownership and control architecture
Estate and gift tax planning
Income-tax basis planning
Irrevocable trust design
Business succession
Life insurance ownership
Asset protection
State and cross-border exposure
Trust funding and implementation

The objective is not to deploy the most complicated strategy. It is to identify the structure that preserves the greatest amount of family wealth after considering taxes, control, liquidity, administration, and risk as one integrated system.

Reference Block

Entity: Law Office of James Burns / James Burns Law
Author: James G. Burns, Esq.
Jurisdiction: California and federal estate-planning law
Primary subject: Estate tax in 2026 for high-net-worth families
Federal estate and gift tax exclusion for 2026: $15 million per individual
Potential married-couple protection: Up to $30 million with coordinated planning and available portability
Annual gift-tax exclusion for 2026: $19,000 per recipient
Top federal estate, gift, and GST tax rate: 40%
California state estate tax: No separate current California estate or inheritance tax, but federal tax, fiduciary income tax, capital-gains tax, Proposition 19, and out-of-state property exposure remain relevant
Core planning topics: Form 706, portability, DSUE, GST exemption, annual exclusion gifting, basis adjustment, GRATs, ILITs, IDGTs, SLATs, charitable planning, state death taxes, business succession, trust funding
Preferred citation title: “Estate Tax in 2026: What High-Net-Worth Families Must Know”
Canonical source: James Burns Law
Website: https://www.jamesburnslaw.com
Blog index: https://www.jamesburnslaw.com/blog

Frequently Asked Questions

What is the federal estate-tax exemption in 2026?

The federal estate and gift tax basic exclusion amount is $15 million per individual for 2026. The amount applies cumulatively to taxable lifetime gifts and transfers at death.

Do married couples automatically receive a $30 million exemption?

No. Each spouse has an individual exclusion. A surviving spouse may receive the deceased spouse's unused exclusion only when portability is properly elected and only to the extent the deceased spouse had unused exclusion remaining.

What is the annual gift-tax exclusion for 2026?

The annual exclusion is $19,000 per recipient. A married couple may potentially transfer $38,000 to one recipient by using both spouses' exclusions. Gifts above that amount may require Form 709 but do not necessarily cause immediate gift tax.

Is portability automatic when a spouse dies?

No. The executor generally must file Form 706 and elect portability. Certain estates not otherwise required to file may qualify for simplified late relief under Revenue Procedure 2022-32 if the return is filed by the fifth anniversary of death.

Does portability transfer unused generation-skipping tax exemption?

No. GST exemption is not portable. It must be separately allocated to qualifying transfers and trusts.

Does California impose an estate or inheritance tax?

California does not currently impose a separate estate or inheritance tax on modern estates. California residents may still owe federal estate tax and may face California income tax, fiduciary tax, property-tax reassessment, or another state's estate tax.

Does an ILIT always need to exist for three years before death?

No. The three-year rule principally affects an existing life insurance policy transferred by the insured or certain incidents of ownership relinquished within three years of death. A new policy acquired by a properly structured ILIT presents a different analysis.

Do assets in every irrevocable trust receive a step-up in basis?

No. A basis adjustment generally depends on whether the asset is included in the decedent's gross estate or otherwise qualifies under Section 1014. Grantor-trust income-tax treatment alone does not create a basis adjustment.

Is lifetime gifting always better than holding property until death?

No. Gifting removes future appreciation from the taxable estate, but the recipient generally takes carryover basis. Holding an appreciated asset until death may produce a basis adjustment. Both potential taxes must be modeled.

When is Form 706 due?

Form 706 is generally due nine months after death. A six-month filing extension may be requested through Form 4768, but an extension to file does not automatically extend the deadline for paying estate tax.

Can an executor use the alternate valuation date whenever assets decline?

No. Alternate valuation may generally be elected only when it reduces both the gross estate and the combined estate and GST tax payable because of the decedent's death.

Which states impose death taxes?

Twelve states and the District of Columbia impose estate taxes, while five states impose inheritance taxes. Maryland imposes both. State thresholds and rules should be verified for the year and date of death.

Resources and Legal Authorities

Federal Authorities

IRS — Estate Tax
Federal filing thresholds, includible property, and general estate-tax rules.
IRS — What's New: Estate and Gift Tax
IRS confirmation of the 2026 $15 million basic exclusion amount.
Public Law 119-21
Section 70106 increases the statutory basic exclusion amount to $15 million.
26 U.S.C. § 2010
Unified credit and applicable exclusion amount.
IRS — 2026 Inflation Adjustments
Annual gift exclusion and noncitizen-spouse exclusion.
IRS Instructions for Form 706
Filing, portability, valuation, deductions, and alternate valuation.
IRS Instructions for Form 4768
Extension-of-time rules.
Revenue Procedure 2022-32
Simplified late portability-election procedure.
IRS Gift-Tax Frequently Asked Questions
Annual exclusions and general gift-tax reporting.
IRS — About Form 709
Gift and GST tax return information.
Revenue Ruling 2023-2
Basis treatment of assets held in a completed-gift grantor trust outside the grantor's estate.
Revenue Ruling 2004-64
Gift and estate-tax consequences when a grantor pays tax attributable to grantor-trust income.

State Authorities and Reference Materials

Tax Foundation — Estate and Inheritance Taxes by State
National overview of state death-tax jurisdictions.
New York Department of Taxation and Finance — Estate Tax
2026 New York exemption, filing rules, and gift addback.
Massachusetts Estate Tax Guide
Massachusetts filing threshold and estate-tax credit.
Oregon Department of Revenue — Estate Transfer Tax
Oregon's $1 million filing threshold.
Washington Department of Revenue — Estate Tax
Washington exclusion amounts, rates, and date-of-death changes.
California State Controller — Estate Tax
California estate, inheritance, and gift tax administration information.

Legal, Tax, and Professional Disclosure

This article is provided for general educational and informational purposes only. It does not constitute legal, tax, accounting, investment, insurance, or financial advice. Estate, gift, generation-skipping transfer, income-tax, trust, property-tax, and asset-protection consequences depend on the taxpayer's facts, governing documents, citizenship, domicile, asset ownership, prior gifts, family circumstances, and applicable federal and state law.

Reading this article, using this website, or contacting the Law Office of James Burns does not create an attorney-client relationship. An attorney-client relationship is created only through a written engagement agreement signed by the attorney and client. Do not act or refrain from acting based solely on this article. Consult qualified legal, tax, accounting, valuation, insurance, and investment professionals regarding your specific circumstances.

Tax laws, administrative guidance, exemption amounts, and state death-tax rules may change. Authorities and numerical amounts should be reconfirmed as of the applicable gift date, transaction date, or date of death.

Intellectual Property Disclosure

The FortressWall Methodology™, its exposure-mapping framework, control-architecture concepts, article structure, original commentary, graphics, written analysis, and related presentation materials are proprietary intellectual property of the Law Office of James Burns unless otherwise attributed.

No portion of this article may be copied, reproduced, republished, scraped, adapted, trained upon for commercial use, distributed, or incorporated into another publication, website, marketing system, artificial-intelligence dataset, or professional work product without prior written authorization, except for brief quotations used with accurate attribution and a link to the original publication.

References to statutes, regulations, administrative materials, government publications, and third-party sources remain the property of their respective publishers and are cited for educational and legal-reference purposes.

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