Estate Tax Exemption
The federal estate tax exemption is the dollar amount of taxable estate (at death) or cumulative lifetime taxable gifts that passes free of federal estate or gift tax. The 2026 amount is $15M per individual ($30M per married couple). OBBBA (P.L. 119-21, July 2025) made the doubled exemption permanent — the TCJA's scheduled sunset to roughly $7M per individual no longer applies — with inflation indexing resuming from 2027.
The federal exemption is a unified credit covering both lifetime taxable gifts (above the annual exclusion of $19,000 per donor per recipient for 2026) and the taxable estate at death. Use of exemption is cumulative: a $5M lifetime gift in 2024 reduces the available exemption at death by $5M. The lifetime gift route uses exemption at the present-day amount; an estate gift uses exemption at the date-of-death amount. Because OBBBA made the higher exemption permanent, the former urgency to use exemption before a scheduled sunset is gone; the planning focus is now using exemption ahead of expected asset growth rather than ahead of a legislated cliff.
The top federal estate tax rate is 40% above the exemption (after small bracket structure below). State-level estate taxes apply in 12+ states with widely varying exemptions and rates — Massachusetts and Oregon have $2M and $1M state-level exemptions respectively, far below the federal level, meaning a $5M estate in Boston owes $0 federal but ~$292k Massachusetts. Connecticut, Hawaii, Illinois, Maine, Maryland, Minnesota, New York, Rhode Island, Vermont, Washington, and DC also have separate state estate or inheritance taxes. State-level rates top out at 16% in most states.
The interaction between portability (DSUE) and exemption growth keeps estate planning active for ultra-high-net-worth couples even though OBBBA removed the scheduled sunset. A married couple can shelter up to $30M combined ($15M each, preservable across deaths through a DSUE portability election); estates above that level still benefit from lifetime gifts to non-grantor trusts (moving future appreciation out of the estate), SLAT structures (preserving spouse access to assets while removing them from the estate), and selective IDGT installment sales.
- 2017 and priorPre-TCJA exemption ~$5M (indexed)Federal exemption based on $5M nominal base, inflation-adjusted to ~$5.49M by 2017.
- 2018TCJA doubles exemptionTCJA raises base to $10M nominal, indexed; immediate effect to ~$11.18M for 2018.
- 2026Exemption $15M per individualOBBBA set the exemption permanently at $15M per person ($30M per married couple) for 2026.
- 2027 onwardPermanent and inflation-indexedOBBBA (signed July 4, 2025) repealed the scheduled reversion to ~$7M; the $15M base is now permanent, with inflation indexing resuming in 2027.
Synthetic UHNW households should carry exemption-usage ledgers tracking lifetime taxable gifts and remaining exemption. Engines projecting estate tax should model the permanent $15M-per-individual exemption (indexed from 2027), the state-level overlay where applicable, and the interaction with DSUE for widowed members.
Common pitfalls
- Computing federal estate tax without checking state-level exposure — Massachusetts and Oregon estates routinely owe state estate tax on amounts well below federal exemption.
- Using lifetime gift exemption without tracking the cumulative ledger — overshooting the $15M exemption puts the excess gift into taxable territory at 40%.
- Overlooking special elections — deferred-payment §6166 and partial-interest valuation discounts can change the available-exemption calculation and the timing of any tax due.
- Gifting to use exemption without weighing the forgone basis step-up — lifetime gifts carry over the donor's basis (§1015) while assets held until death receive a §1014 step-up, so using exemption early can trade estate-tax savings for higher capital-gains exposure.
Examples
Couple with $40M combined estate, combined exemption $30M ($15M each). Holding everything until death: ~$10M taxable × 40% = $4M federal estate tax at the second death. OBBBA's permanent exemption removes the old 'gift before the sunset' urgency, so the remaining lever is freezing appreciation — gifting $10M of fast-growing assets to an irrevocable trust today uses $10M of exemption now, but all future growth on those assets compounds outside the estate, beyond the reach of the 40% tax at death.