Estate Tax Exemption: What is It and Strategies to Plan Estate Tax

The estate tax exemption is used to determine the amount of wealth that you can pass at any point in the course of your life or death without incurring any federal estate tax. Due to the recent changes in legislation in the One Big Beautiful Bill Act (OBBBA), the exemption is not reducing but rather growing in 2026. 

When it comes to wealth planning, it is important to know the federal estate tax exemption 2025 and the estate tax exemption 2026 in order to have productive wealth planning. Proper structuring often requires coordinated accounting services to ensure compliance and valuation accuracy.

We have explained everything about the estate tax exemption 2026 in this blog. So let’s get into it!

What is the Estate Tax Exemption?

The estate tax exemption refers to the amount of assets one can transfer without paying federal estate tax on them. When your estate falls below this mark, then you do not owe any federal estate tax. 

Tax in itself is commonly known as the federal death tax, but it is not its official name. The estate tax is imposed on amounts of your property that are above the exemption threshold. 

These exemptions are combined with the federal gift tax, such that lifetime gifts will decrease the amount at death. Strategic estate documentation and structured tax return services ensure proper reporting of taxable transfers.

Federal Estate Tax Exemption 2025

The federal estate tax exemption is 13.99 million per individual in 2025. This means; 

• People will be able to move up to $13.99 million without taxes. 
• Through portability, married couples can protect up to $27.98 million. 
• The current federal estate tax is 40 percent on amounts in excess of the exemption. 

Estates under this amount are not subject to estate tax at the federal level. However, estate planning frequently intersects with structured year end accounts & CT returns services when business ownership is involved.

Changes in Estate Tax Exemption 2026

The One Big Beautiful Bill Act (OBBBA) brings a significant change in the federal estate tax regulations by raising the exemption threshold in 2026. Businesses reviewing valuation structures often rely on detailed management accounts services to assess asset worth before transfers.

Key updates: 

• Effective 1 January, 2026: Corporate entities involved in estate transitions may also require accurate bookkeeping services to determine fair market value.

• $30 Million for Married Couples: When their estate planning policies, including portability elections, are implemented, married couples can successfully protect $30 million worth of their property against the federal estate tax.

• Permanent Exemption (no time-out clause): This exemption increase is permanent, unlike the earlier legislation, which had a built-in expiration date. It does not have a scheduled reduction or sunset provision, which will provide long-term certainty to those who use it to plan an estate as well as to the taxpayer.

• Inflation Adjustments Starting in 2027: The exemption will be increased to $15 million per year at the beginning of 2027. This makes the exemption up-to-date with the time-related fluctuations in asset values and the economy.

• Federal Estate Tax Rate of 40 percent: Structured tax planning, including professional tax outsourcing, can help families manage complex estate filings efficiently.

This is a significant change to expectations of a decrease. The exemption has been made permanent, which has provided stability in estate planning in the long term. 

How Federal Estate and Gift Taxes Work Together?

The federal estate tax and gift tax have a single exemption limit with respect to lifetime. This implies that you do not get two limits; it is all the total you can spend, whether before or after death. 

Here’s how it works: 

• During your lifetime, you can take the exemption. If you make large gifts during your lifetime (more than the annual exclusion limit), the gifts are included in your lifetime exemption.

• Or you can use it at death. The extent of exemption you have not used over time will be carried over to your death years to save on taxes on your estates. 

For example, you have an exemption amounting to $13.99 million, and you use the exemption amount of 3 million to buy taxable gifts in your lifetime, then you will be left with an exemption amount of 10.99 million to protect your estate against tax. Proper tracking of financial movements, including organized accounts payable services and accurate accounts receivable services outsourcing, ensures lifetime transfers and liabilities are clearly documented.

What is the Annual Gift Tax Exclusion?

Besides the lifetime exemption, people can use annual gifts that are tax-free. 

For 2025: 

• Annual exclusion: $19,000 per recipient.
• Married couple: $38,000/head through gilf splitting.

These are annual gifts that are not counted towards your lifetime exemption in terms of estate tax. 

The special planning strategies are: 

• Rapid 5-year travel financing of 529 plans. 
• Direct tuition or medical payments (which might be further excludable). 

What is Portability? 

Portability is a type of claim that a surviving spouse is entitled to have any unused estate tax exemption of their spouse. 

For example, 

If one of the spouses passes away in 2025 and he used all his exemption of $5 million, the $8.99 million can also be given to the other spouse. 

This involves protection being effective among married couples, as they can: 

• Get $27.98 million in 2025.
• Now, get $30 million in 2026.

Significance: Portability is to be elected by the executor where IRS Form 706 is required to be filed, even where no estate tax is payable. 

What Assets Does the Estate Contain?

The fair market value of the following is considered taxable estate: 

• Real estate 
• Cash and investments 
• Retirement accounts 
• Business interests 
• Personal property 

The full valuation at death is needed by the IRS to ascertain whether the estate is higher than the exemption. 

Strategies for Planning the Estate Tax

Every year government changes the quota and percentage of exemption, but here are a few things that help you to plan ahead so that you can avoid tax liability. 

Key strategies: 

• Life Gifting: You can use a fraction of your exemption today to eliminate appreciation tomorrow of your taxable estate. 

• Trust Structures: Classes of common planning vehicles are Spousal Lifetime Access Trusts (SLATs), GRATs or Grantor Retained Annuity Trusts, and Irrevocable Life Insurance Trusts (ILITs). 

• Dynasty Trusts: This is a method that will allow the maintenance of wealth between generations, as well as decrease exposure to estate taxes. 

• Locking in Assured Values: Considering the present value of future growth from your estate, gifting appreciating assets in 2025 can freeze their value today and defer the increase to the future. 

• Asset Swap and Intra-family Loans: Advanced planning strategies can be used to shift values in an efficient way without causing instant tax implications to families who have already claimed big parts of their exemption. 

Final Words 

The estate tax exemption is also permanently indexed and is presently high at 13.99 million in 2025 and 15 million in 2026.

Currently, married couples can transfer up to 430 million without any federal estate tax as early as the year 2026. 

Note that the interaction between the estate tax exemption, federal gift tax, portability, and trust strategies is an important step toward intergenerational wealth protection. Be careful planning in the present so you can save 40% of the federal estate tax and leave your monetary legacy behind.