For several years, high-net-worth families planned around a looming deadline: the lifetime gift and estate tax exemption was scheduled to be cut roughly in half when the Tax Cuts and Jobs Act (TCJA) provisions expired at the end of 2025. That sunset never happened. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, canceled the scheduled cut and set a new, higher exemption that does not expire. Understanding how the current exemption works, and how gifting strategies and irrevocable trusts still protect wealth, can save your heirs millions in federal transfer taxes.
What is the lifetime gift and estate tax exemption?
The lifetime gift and estate tax exemption is the total amount a person can transfer to others during life or at death without owing federal gift or estate tax. The TCJA nearly doubled this exemption when it took effect in 2018, and the figure rose with inflation each year, reaching $13.99 million per individual in 2025.
Under prior law, that elevated exemption was set to expire on January 1, 2026, reverting to roughly half its level, around $7 million per person after inflation adjustments. OBBBA changed that outcome entirely. Effective January 1, 2026, the exemption is $15 million per individual and $30 million for a married couple, and the increase is permanent rather than subject to a built-in sunset. The figure will continue to be adjusted for inflation in future years.
It is worth being precise about what “permanent” means here. The exemption no longer carries a scheduled expiration date, but a future Congress could still change it through new legislation. For now, the planning environment is far more favorable, and far less rushed, than the one families faced before OBBBA passed.
How much is the 2026 exemption, and what is the tax rate?
For decedents who die during 2026, the basic exclusion amount is $15 million, up from $13.99 million in 2025. A married couple can shield a combined $30 million from federal estate and gift tax. The IRS confirmed these figures in its 2026 inflation adjustment release reflecting the One Big Beautiful Bill, which is the authoritative reference as the numbers change.
The federal estate and gift tax rate on amounts exceeding the exemption remains 40 percent. That means every dollar of wealth above the exemption that is not sheltered through gifting or other strategies can be taxed at that rate upon death. For a family whose combined assets exceed $30 million, careful planning can still represent several million dollars in tax savings.
Separately, the annual gift tax exclusion, the amount you can give each recipient every year without using any lifetime exemption, is $19,000 per recipient for 2026. Annual exclusion gifts sit on top of the lifetime exemption and remain a simple, powerful tool for transferring wealth over time.
Who should still consider estate planning under the new rules?
The end of the sunset threat does not eliminate the federal estate tax. Planning remains critical for anyone whose net worth approaches or exceeds the $15 million individual or $30 million married-couple exemption. If your total assets, including real estate holdings, investment portfolios, business ownership, retirement accounts, and life insurance death benefits, exceed these figures, you may face federal estate tax exposure.
Even individuals whose current net worth falls below these thresholds should evaluate their situation periodically. Asset appreciation, inheritances, or business growth could push an estate above the exemption over time, and state-level estate or inheritance taxes can apply at far lower thresholds than the federal exemption. Coordinated tax advisory services help quantify your exposure and model the impact of different gifting scenarios before you commit.
How gifting to an irrevocable trust reduces estate taxes
A strategy commonly used by high-net-worth families to reduce estate taxes is a gift to an irrevocable trust for the benefit of children and grandchildren. When you transfer assets to a properly structured irrevocable trust, those assets, and all future appreciation on them, are permanently removed from your taxable estate. This is the core mechanism behind what estate planners call an “estate freeze,” and it remains just as effective under the higher 2026 exemption.
How the gift and estate tax unified system works
Here is how an irrevocable trust gift tax strategy works in practice. You make a gift to the trust and report it on a federal gift tax return. The gift uses a portion of your lifetime gift tax exemption. Because the federal gift and estate tax exemptions are unified, this also reduces the exemption amount available to shelter your estate from tax at death.
At first glance, this may seem like a neutral transaction in which you use exemption now instead of later. The real benefit emerges over time. If the transferred assets grow in value between the date of the gift and the date of your death, all of that post-gift appreciation stays outside your taxable estate. You have effectively frozen the value for tax purposes at the time of transfer, while your heirs receive the benefit of the full appreciated value.
A practical example of the estate freeze
For example, suppose you gift $10 million in assets to an irrevocable trust today, and those assets grow to $16 million by the time of your death. Only the original $10 million counts against your exemption. The additional $6 million in growth passes to your beneficiaries free of estate tax, a savings of $2.4 million at the 40 percent rate.
Why the size of the gift still matters
Making a gift of any size to an irrevocable trust can produce estate tax savings through the appreciation freeze described above. Families who want to maximize the benefit of the larger exemption should think carefully about how much exemption to use and when.
How the IRS tracks cumulative lifetime gifts
The federal system tracks lifetime gifts cumulatively. The IRS maintains a running record of all taxable gifts made during a person’s lifetime, and this total determines how much exemption remains available at death. A taxpayer who gifts $1 million will have used $1 million of exemption, leaving the balance available for future gifts or to shelter the estate.
Because the exemption is now $15 million per person rather than reverting to roughly $7 million, families have substantially more room to transfer wealth during life than prior law would have allowed. There is no longer a use-it-or-lose-it deadline forcing large gifts before a year-end cutoff, which means planning can proceed on a more deliberate timeline.
The anti-clawback rule still protects large gifts
Taxpayers who made large gifts during the elevated TCJA years remain protected. The IRS confirmed through final regulations that it will not “claw back” gifts made under the higher exemption, even if the applicable exemption is later lower at death. This is the “anti-clawback” rule, and the agency explained it in guidance confirming that making large gifts now will not harm estates. With the OBBBA exemption now permanent, the urgency that originally drove this rule has eased, but the certainty it provides remains valuable for families who already made substantial transfers.
What types of assets work best for lifetime gifts?
Not all assets are equally effective for lifetime gifting. The estate freeze strategy produces the greatest benefit when the transferred assets are expected to appreciate significantly over time. Assets that are particularly well-suited for gifting include:
- Interests in a growing business: Private company shares or partnership interests that are likely to increase in value offer strong freezing potential, especially when valuation discounts for minority interests or lack of marketability apply.
- Real estate with appreciation potential: Investment properties in growing markets can generate substantial post-gift gains outside the estate. Owners of real estate holdings often pair gifting with entity-level planning to capture valuation discounts.
- Securities and investment portfolios: Diversified portfolios with a long time horizon allow post-transfer growth to compound tax-free for beneficiaries.
- Life insurance policies: Transferring a life insurance policy to an irrevocable life insurance trust (ILIT) removes the death benefit from the taxable estate entirely.
Assets that produce primarily current income rather than appreciation, such as bonds or stable dividend stocks, may be less effective for the freezing strategy, though they can still be useful in certain planning scenarios. A gift of appreciated property also carries the donor’s cost basis to the recipient, so families should weigh income tax basis consequences alongside estate tax savings.
Generation-skipping transfer tax: an additional consideration
The 2026 changes also affect the generation-skipping transfer (GST) tax exemption. The GST tax is an additional layer of tax that applies to transfers, whether by gift or at death, that skip a generation, such as gifts directly to grandchildren. The GST exemption is set at the same level as the gift and estate tax exemption, which means it is also $15 million per person in 2026.
For families considering multi-generational wealth transfer, allocating GST exemption to trust gifts can provide compounding benefits. Assets held in a GST-exempt trust can grow and pass across multiple generations without triggering additional transfer taxes at each generational level.
Steps to take now to protect your estate
The structure of the federal estate and gift tax system has always rewarded families who plan early. The larger, permanent exemption removes the pressure of a year-end deadline, but it does not remove the value of thoughtful planning. Here is a practical roadmap:
1. Calculate your total net worth. Include all assets: real estate, business interests, retirement accounts, investment portfolios, and life insurance death benefits.
2. Compare against the current exemption. If your net worth approaches or exceeds $15 million (individual) or $30 million (married couple), federal estate tax exposure is a real consideration.
3. Account for state taxes. Several states impose their own estate or inheritance taxes at thresholds well below the federal exemption, so a plan that works federally may still leave state exposure.
4. Consult with an estate planning attorney and tax advisor. Irrevocable trust structures must be properly drafted and administered to achieve the intended tax results. This is not a do-it-yourself project.
5. Evaluate which assets to gift. Prioritize high-appreciation assets to maximize the estate freeze benefit, while weighing income tax basis tradeoffs.
6. File gift tax returns. All gifts to irrevocable trusts must be reported on IRS Form 709, and GST exemption allocations must be made on the return.
If a closely held business is part of your estate, the timing of a gift can intersect with a planned sale or recapitalization, so it pays to align the work with your transaction advisory team as well. For additional questions about how the federal gift and estate tax exemption affects your situation, reach out to a qualified tax advisor.
Frequently asked questions
What happened to the gift tax exemption after 2025?
The exemption did not drop as previously scheduled. The One Big Beautiful Bill Act, signed July 4, 2025, canceled the TCJA sunset and set the exemption at $15 million per individual and $30 million per married couple effective January 1, 2026. The increase is permanent and continues to be adjusted for inflation.
Can the IRS claw back gifts made under the higher exemption?
No. The IRS issued final regulations confirming that gifts made while a higher exemption is in effect will not be subject to additional estate tax if the applicable exemption is later lower at death. This “anti-clawback” rule means taxpayers who made large gifts during the elevated TCJA years keep the benefit.
How does an irrevocable trust help reduce estate taxes?
An irrevocable trust removes gifted assets, and all future appreciation on those assets, from the donor’s taxable estate. While the gift itself uses a portion of the lifetime exemption, any growth in the asset’s value after the transfer passes to beneficiaries free of estate tax. This estate freeze strategy is most effective with assets expected to appreciate significantly.
What is the federal estate tax rate on amounts above the exemption?
The federal estate and gift tax rate is 40 percent on taxable transfers that exceed the available exemption. For a married couple with $36 million in assets and a $30 million exemption, the potential estate tax on the excess $6 million would be $2.4 million.
Do I need to file a tax return when I make a gift to a trust?
Yes. Any gift to an irrevocable trust must be reported on IRS Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. The return is filed for the year in which the gift was made and is used to track cumulative lifetime gifts against the available exemption.
Is the higher exemption going to last?
There is no longer a built-in expiration date, so the $15 million exemption is permanent under current law. A future Congress could still change it through new legislation, so families with substantial estates should continue to monitor developments and revisit their plans periodically.
