For several years, estate planning advice was shaped by a deadline. The elevated federal exemption was scheduled to fall by roughly half at the end of 2025, and a great deal of planning was done specifically to use the higher amount before it disappeared. Legislation in 2025 removed the sunset and set a higher permanent level instead.
That changes the urgency considerably. It does not remove the reasons to plan.
This is general information, not tax or legal advice. Estate rules are complex and jurisdiction-specific; consult a qualified professional.
What changed in 2026
- The scheduled reduction was cancelled. Rather than reverting to the pre-2018 level adjusted for inflation, the exemption was set at a higher figure with ongoing inflation indexing.
- Permanent replaced temporary. The provision no longer carries an expiry date, which removed the deadline-driven planning pressure of the prior years.
- State-level exposure became the live issue. With the federal threshold high, state estate and inheritance taxes are what most affected families actually encounter.
- Some deadline planning needed review. Structures created specifically to beat the sunset warranted a second look, though many remain useful for other reasons.
Federal versus state
|
Federal estate tax |
State estate or inheritance tax |
| Threshold |
Very high |
Often far lower; varies widely |
| Number of estates affected |
Small |
Larger in states that impose it |
| Spousal transfers |
Generally unlimited |
Usually unlimited, varies |
| Portability between spouses |
Available, requires an election |
Often not available |
| Who pays |
The estate |
The estate, or beneficiaries under inheritance taxes |
| Planning relevance |
High net worth only |
Middle-affluent families in those states |
The practical implication for most people is that the federal number is not the one to worry about. States that impose their own estate tax frequently do so at thresholds well below the federal level, and a handful impose inheritance taxes assessed on beneficiaries rather than the estate — sometimes varying by how closely related the beneficiary is.
Moving between states changes this exposure entirely, which is a planning consideration people rarely connect to a relocation decision.
What still matters
Portability. When the first spouse dies, their unused federal exemption can transfer to the survivor — but only if an election is made on a timely-filed estate tax return, even when no tax is owed. Families skip that filing because there is no tax due and lose the benefit. If the combined estate could ever approach the threshold, file.
Basis step-up. Assets generally receive a new cost basis at death, which can eliminate a large embedded capital gain. This interacts with lifetime gifting, where the recipient takes your basis instead. For appreciated assets, holding until death can be more tax-efficient than gifting during life — which cuts against the instinct to give things away early.
Documents. The exemption level has nothing to do with whether your will is current, your beneficiary designations match your intentions, or anyone can find your accounts. Beneficiary designations override wills, and stale ones are among the most common and most avoidable estate problems. The account-access side of this is covered in digital estate planning.
Common mistakes
- Skipping the portability election. No tax due does not mean no filing benefit.
- Assuming the federal threshold is the only one. State taxes catch far more families.
- Gifting appreciated assets reflexively. You may be giving away a basis step-up worth more than the transfer.
- Treating permanent as permanent. A statutory level can be changed by future legislation.
- Ignoring beneficiary designations. They control the asset regardless of what the will says.
FAQ
Do I need an estate plan if I am below the threshold?
Yes, for entirely non-tax reasons — guardianship, probate avoidance, healthcare directives, and making sure your wishes are followed. Tax is one purpose among several.
Could the exemption drop again?
It is set by statute and can be amended by future legislation. Permanent means no scheduled expiry, not immunity from change.
What is portability exactly?
The ability for a surviving spouse to use the deceased spouse's unused federal exemption, claimed via an election on an estate tax return filed within the required window.
Should I unwind trusts set up for the sunset?
Not without advice. Many were created for asset protection, control, or state tax reasons that survive the federal change, and unwinding can have its own consequences.
Where to go next
For the account access side, read digital estate planning. For related tax planning, capital gains tax explained and QSBS explained.