Estate Tax Exemption 2026: The New $15M Limit

The Big News: The TCJA Estate Tax Sunset Was Eliminated

If you spent 2024 and early 2025 hearing about the looming estate tax exemption “cliff,” here is the update you need: the sunset never happened.

The Tax Cuts and Jobs Act (TCJA) of 2017 doubled the federal estate tax exemption from approximately $5.49 million to $11.18 million per person. That increase was always temporary, set to expire on December 31, 2025. Estate planners across the country spent years urging clients to “use it or lose it” before the exemption dropped back to roughly $7 million per person.

Then came the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025 as Public Law 119-21. Among its many provisions, the OBBBA permanently eliminated the TCJA estate tax sunset. The higher exemption is here to stay, and it continues to increase with inflation.

What the One Big Beautiful Bill Act Changed

The OBBBA removed the December 31, 2025 expiration date from the TCJA’s estate and gift tax provisions. Instead of reverting to the pre-TCJA baseline (approximately $7 million per person, adjusted for inflation), the exemption continued to rise. For 2026, the federal estate tax exemption is $15 million per individual and $30 million for married couples using portability.

This change is permanent and indexed for inflation, meaning the exemption amount will continue to increase each year based on IRS inflation adjustments.

The Numbers: $15 Million Per Person, $30 Million Per Couple

Here is how the federal estate tax exemption has evolved:

For most California families, this means the federal estate tax is a non-issue. Only estates exceeding $15 million per person (or $30 million per married couple) will owe federal estate tax at the current rate of 40% on amounts above the exemption (IRC §2001(c)).

2026 Federal Estate Tax Exemption: Key Numbers at a Glance

How the Federal Estate Tax Is Calculated

The federal estate tax applies to the gross estate minus allowable deductions. Your gross estate includes all assets you own or have an interest in at death: real property, bank accounts, investments, retirement accounts, life insurance proceeds, business interests, and personal property.

After subtracting debts, funeral expenses, charitable donations, and the marital deduction (for assets passing to a surviving spouse), the remaining taxable estate is compared against your available exemption. Only the amount exceeding your exemption is taxed at 40%.

Gift Tax Rules for 2026

Annual Gift Tax Exclusion: $19,000 Per Recipient

In 2026, you can gift up to $19,000 per recipient per year without using any of your lifetime exemption or filing a gift tax return. This is an increase from $18,000 in 2025, reflecting IRS inflation adjustments. Married couples who elect gift-splitting can give up to $38,000 per recipient jointly.

There is no limit on the number of recipients. A married couple with three children and six grandchildren could gift up to $342,000 per year ($38,000 × 9 recipients) without touching their lifetime exemption.

Lifetime Gift Tax Exemption: $15 Million Per Person

The lifetime gift tax exemption is unified with the estate tax exemption. Any portion of the $15 million exemption you use for lifetime gifts reduces the exemption available at death. For most families, careful use of the annual exclusion is the more practical gifting strategy.

When You Need to File Form 709

You must file IRS Form 709 (United States Gift and Generation-Skipping Transfer Tax Return) if you make gifts exceeding the annual exclusion to any individual in a calendar year, or if you and your spouse elect gift-splitting. Filing Form 709 does not necessarily mean you owe gift tax; it simply reports the gift against your lifetime exemption.

California-Specific Estate Tax Considerations

California Has No State Estate Tax

California has not imposed a state estate tax since 1982, when voters passed Propositions 5 and 6 eliminating it. California also has no state inheritance tax. This is a significant advantage compared to states like Washington (up to 20%), Oregon (up to 16%), or New York (up to 16%).

However, California residents remain subject to the federal estate tax on estates exceeding the $15 million per person exemption. And California’s high income tax rate (up to 13.3%) can apply to distributions from inherited retirement accounts like IRAs and 401(k)s.

Community Property and the Double Step-Up in Basis

California is a community property state, which provides a major tax benefit for surviving spouses. Under Internal Revenue Code Section 1014(b)(6), when one spouse dies, both halves of community property receive a stepped-up basis to the current fair market value.

In separate property states, only the deceased spouse’s share gets the step-up. In California, the full step-up applies to all community property. This can eliminate significant capital gains tax liability when the surviving spouse later sells inherited assets.

Example: A married couple in Clovis purchased their home for $200,000 twenty years ago. At the time of one spouse’s death, the home is worth $650,000. In California, the surviving spouse’s basis in the home steps up to the full $650,000. If they sell the home, they owe no capital gains tax on the $450,000 of appreciation. In a separate property state, only $225,000 of appreciation would have been eliminated by the step-up.

Portability: Using Your Spouse’s Unused Exemption

Portability allows a surviving spouse to use the deceased spouse’s unused estate tax exemption, called the Deceased Spousal Unused Exclusion (DSUE) amount. To claim portability, the executor must file Form 706 (Federal Estate Tax Return) within 9 months of death, even if no estate tax is owed.

With portability and the 2026 exemption, a married couple can effectively shelter up to $30 million from federal estate tax. For most Central California families, this eliminates any realistic estate tax concern. However, portability does not apply to the generation-skipping transfer (GST) tax exemption, which is a consideration for families planning multi-generational wealth transfers.

Proposition 19 and Inherited Property Taxes

While the federal estate tax exemption protects most California families from estate tax, Proposition 19 creates a separate property tax concern for inherited real estate.

Before Proposition 19 (effective February 16, 2021), children who inherited a parent’s home could keep the parent’s low property tax assessment regardless of whether they lived in the home. Under Prop 19, inherited property is reassessed to current market value unless the inheriting child uses it as their primary residence and files a homeowner’s exemption within one year of transfer.

Even if the child does move in, if the property’s current market value exceeds the assessed value by more than $1 million, the reassessment is partially adjusted upward. This can result in significant property tax increases for families inheriting homes in areas where values have appreciated substantially, including Clovis, Madera, and Solvang.

Proper estate planning can help families navigate Prop 19’s requirements and minimize property tax impacts on inherited real estate.

California Income Tax on Inherited Retirement Accounts

While California does not tax inheritances directly, inherited retirement accounts (IRAs, 401(k)s, 403(b)s) are subject to California income tax when distributions are taken. Under the SECURE Act, most non-spouse beneficiaries must withdraw all funds from inherited retirement accounts within 10 years of the account owner’s death.

With California’s top income tax rate of 13.3% (plus federal income tax), large inherited retirement accounts can generate substantial tax liability over the 10-year distribution period. Strategic planning around the timing of distributions can help minimize this impact.

What This Means for Central California Families

Estate Tax Exposure for Clovis, Madera, and Solvang Families

For most families in Central California, the $15 million per person exemption ($30 million for couples) means federal estate tax is not a practical concern. Consider a typical scenario:

• Primary residence in Clovis: $650,000
• Retirement accounts (IRA, 401k): $800,000
• Life insurance policy: $500,000
• Savings and investments: $300,000
• Personal property: $100,000
• Total estate: $2,350,000

This estate is well under the $15 million threshold. Even a more affluent family with a $1.2 million home, $2 million in retirement accounts, $1 million in investments, and a $1 million life insurance policy has a combined estate of $5.2 million, still far below the exemption.

Why Estate Planning Still Matters Under $15 Million

Even though the estate tax does not apply to most families, estate planning is about far more than avoiding federal taxes. Without a proper estate plan, your family faces:

• California probate: Estates without a trust must go through probate, which takes 12 to 18 months and costs 4% to 10% of the estate value in attorney and executor fees under California Probate Code §10810-10811
• No healthcare decision guidance: Without an advance healthcare directive, your family has no legal authority to make medical decisions if you become incapacitated
• Property tax reassessment: Prop 19 can increase property taxes on inherited homes if not properly planned for
• Family conflict: Without clear instructions, inheritance disputes can divide families
• No financial management: Without a durable power of attorney, no one can manage your finances if you are unable to do so

A revocable living trust avoids probate entirely, provides incapacity planning, and gives your family clear instructions for managing and distributing your assets.

If You Already Planned for the Sunset: What to Do Now

Many families took proactive steps in 2024 and early 2025 to “use” the high exemption before the anticipated sunset. If you were one of them, here is what you need to know.

Gifts Made in 2024-2025: The Anti-Clawback Rule

If you made large gifts in 2024 or 2025 to reduce your taxable estate before the sunset, those gifts are fully protected. The IRS finalized the anti-clawback rule in Treasury Regulation §20.2010-1(c), which ensures that gifts made during the high-exemption period are not recaptured even if the exemption later decreases.

Since the OBBBA actually increased the exemption to $15 million (from $13.99 million in 2025), your gifts simply reduced your available lifetime exemption. There is no adverse tax consequence.

SLATs and Irrevocable Trusts Created Before the OBBBA

Spousal Lifetime Access Trusts (SLATs) and other irrevocable trusts created to shelter assets before the sunset are still valid and functional. These trusts continue to provide asset protection, generation-skipping benefits, and potential income tax advantages. However, some families may find that the urgency that motivated these trusts has diminished now that the exemption is permanent at $15 million.

A/B Trusts That May Now Be Overly Complex

A/B trust splitting (also called bypass trust or credit shelter trust planning) was a standard strategy when exemptions were lower. These structures split a married couple’s trust into two sub-trusts at the first spouse’s death to maximize the use of both exemptions. With a $30 million combined exemption and portability, many A/B trusts are now unnecessarily complex and may restrict the surviving spouse’s access to assets without meaningful tax savings.

If your estate plan includes A/B trust provisions, consult with an estate planning attorney to determine whether simplifying your plan makes sense for your family’s situation.

Estate Planning Strategies for 2026 and Beyond

Revocable Living Trusts for Probate Avoidance

For Central California families, a revocable living trust remains the single most important estate planning tool. California probate is expensive (statutory attorney and executor fees under Probate Code §10810 can reach 4% on the first $100,000 of the estate and decrease from there) and time-consuming (12 to 18 months on average). A funded revocable trust bypasses probate entirely, saving your family time, money, and stress.

Irrevocable Trusts for Asset Protection

Even without estate tax concerns, irrevocable trusts serve important purposes including creditor protection, Medi-Cal planning (subject to the 30-month look-back period under California law as of January 1, 2024), and protecting assets for beneficiaries with special needs or spending concerns. Under California Probate Code §§15400-15414, irrevocable trusts cannot be modified or revoked without specific legal processes.

Annual Gifting Strategies

Taking advantage of the $19,000 annual gift tax exclusion is a simple, effective strategy for gradually reducing your estate while supporting your family during your lifetime. Gifts to 529 education savings plans can be front-loaded up to five years ($95,000 per beneficiary) without using your lifetime exemption.

Life Insurance Planning

Life insurance proceeds are included in your gross estate if you own the policy at death. For families with estates approaching the $15 million exemption, an irrevocable life insurance trust (ILIT) can hold the policy outside your estate, keeping the proceeds from triggering estate tax liability.

Business Succession Planning

Business owners in Central California should consider business succession planning as part of their estate strategy. Buy-sell agreements, entity structuring, and valuation discounts for family-owned businesses can facilitate smooth transitions while minimizing tax impacts.

Charitable Giving Strategies

Charitable giving can reduce your taxable estate while supporting causes you care about. Donor-advised funds, charitable remainder trusts, and direct bequests all provide estate tax deductions. For families who made large gifts before the OBBBA and now have fewer tax concerns, redirecting future planning toward charitable strategies can be particularly effective.

Charitable Remainder Trusts for Tax-Efficient Giving

If you are charitably inclined, a charitable remainder trust lets you remove appreciated assets from your estate, receive an income stream for life, and claim a partial income tax deduction, all while supporting a cause you care about. CRTs can be especially useful for families holding highly appreciated California real estate or concentrated stock positions.

Frequently Asked Questions

What is the federal estate tax exemption for 2026?

The federal estate tax exemption for 2026 is $15 million per individual ($30 million for married couples using portability). The One Big Beautiful Bill Act, signed July 4, 2025, made this exemption permanent and indexed for inflation.

Did the estate tax exemption sunset in 2026?

No. The TCJA estate tax exemption was originally scheduled to sunset on December 31, 2025, which would have dropped the exemption to approximately $7 million per person. The One Big Beautiful Bill Act (Public Law 119-21) eliminated the sunset, making the higher exemption permanent.

What is the annual gift tax exclusion for 2026?

The annual gift tax exclusion for 2026 is $19,000 per recipient ($38,000 for married couples using gift-splitting). This increased from $18,000 in 2025 due to IRS inflation adjustments. Gifts within this amount do not require a gift tax return.

Does California have an estate tax?

No. California has not had a state estate tax since 1982 and has no state inheritance tax. However, California residents are still subject to the federal estate tax on estates exceeding $15 million per person. California income tax (up to 13.3%) may also apply to distributions from inherited retirement accounts.

What happens to gifts I made in 2024-2025 before the OBBBA?

Those gifts are fully protected. The IRS anti-clawback rule (Treasury Regulation §20.2010-1(c)) ensures gifts made during the high-exemption period cannot be recaptured. Since the exemption actually increased to $15 million, your previous gifts simply reduced your available lifetime exemption with no adverse tax consequence.

Should I update my estate plan after the One Big Beautiful Bill?

Yes. If your estate plan was designed around the anticipated TCJA sunset, particularly if it includes A/B trust splitting, SLATs, or aggressive gifting strategies, you should have your plan reviewed. The permanent $15 million exemption may mean your plan can be simplified while still achieving your goals.

How does California’s community property affect estate planning?

California’s community property laws provide a significant tax advantage: both halves of community property receive a full step-up in basis when one spouse dies under IRC §1014(b)(6). This can eliminate substantial capital gains tax liability when the surviving spouse sells inherited assets, making California one of the most favorable states for inherited property.

What is Proposition 19 and how does it affect inherited property?

Proposition 19 (effective February 2021) changed California property tax rules for inherited homes. Unless the inheriting child uses the property as their primary residence and files within one year, the property is reassessed to current market value. This can result in significant property tax increases, particularly in areas with substantial appreciation like Central California.

Do I still need an estate plan if my estate is under $15 million?

Absolutely. Estate planning addresses far more than estate taxes. Without a trust, your family faces California probate (12 to 18 months, 4% to 10% of estate value in costs), has no guidance for healthcare decisions during incapacity, and may encounter property tax reassessment under Prop 19. A comprehensive estate plan protects your family regardless of your estate’s size.

What is portability and how does it work with the $15 million exemption?

Portability allows a surviving spouse to use the deceased spouse’s unused estate tax exemption (the DSUE amount). To claim it, the executor must file Form 706 within 9 months of death, even if no estate tax is owed. With portability, a married couple can effectively shelter $30 million from federal estate tax.

Next Steps: Protect Your Family’s Future

The permanent $15 million estate tax exemption is good news for most California families. But it does not eliminate the need for thoughtful estate planning. Probate avoidance, incapacity planning, Prop 19 compliance, and family protection are just as important as ever.

Whether you need to create your first estate plan, update an existing plan that was designed around the TCJA sunset, or review your trust administration strategy, the team at Lawvex can help. We serve families throughout Central California from our offices in Clovis, Madera, and Solvang.

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This article is for educational purposes only and does not constitute legal advice. Tax laws are complex and subject to change. Consult with a qualified estate planning attorney and tax professional regarding your specific situation. Last updated April 2026.