The Estate Tax Exemption Is Shrinking in 2026: What Families Should Consider Now

For most American families, the federal estate tax is a hypothetical. At $13,990,000 per person in 2025, the lifetime exemption sits high enough that the vast majority of estates never encounter it.

But "most families" isn't everyone. For households with real estate that has appreciated dramatically, business interests built over decades, or investable assets accumulated through disciplined saving, the math is changing — and the change is coming soon.

The current exemption amounts are scheduled to sunset at the end of 2025 under the Tax Cuts and Jobs Act of 2017. Unless Congress acts before then, the per-person exemption drops to roughly $7,000,000 in 2026, adjusted for inflation. For a married couple, that means moving from approximately $27,980,000 in combined exemption to around $14,000,000.

That's not a small shift. For families with estates in the $10M–$30M range, the difference could represent millions of dollars in tax exposure — on wealth that has already been earned and taxed at least once.

Who This Actually Affects

The people who need to pay attention are not just the ultra-wealthy. If you're in any of these situations, the sunset deserves a serious conversation with your advisor before year-end.

**Appreciated real estate.** Families who bought commercial property, a vacation home, or residential real estate decades ago may be sitting on values far beyond the original purchase price. If that appreciation pushes a taxable estate above $7M in 2026, the strategy that made sense last year may not be sufficient next year.

**Business owners.** The value of a closely held business is often the single largest asset in an estate — and valuing it for estate tax purposes involves complexity that takes time to navigate properly. Owners who have been planning around the current exemption may need to revisit those plans.

**Investors who have compounded over time.** A $4M portfolio in 2015 growing at historical equity rates could be worth significantly more today. Combined with a home, a spouse's assets, and a retirement account balance, an estate can cross the post-sunset threshold without feeling wealthy by any ordinary measure.

What the Exemption Sunset Actually Means

The lifetime estate and gift tax exemption controls how much you can transfer — during your life or at death — without triggering federal estate tax. The current top rate is 40 percent on amounts above the exemption.

The 2017 Tax Cuts and Jobs Act temporarily doubled the exemption. Without new legislation, it reverts in 2026. The IRS has confirmed that gifts made under the higher exemption will not be "clawed back" — meaning that using the current exemption before it drops is a legitimate planning strategy, not a gamble on whether Congress will act.

That anti-clawback protection is meaningful. It creates a narrow, time-sensitive window.

Strategies Worth Discussing Now

The right approach depends on your specific assets, family situation, and goals — but here are the planning levers that deserve attention before the potential sunset.

**Accelerated gifting.** The annual gift tax exclusion allows tax-free transfers of $19,000 per recipient per year in 2025. For a married couple, that's $38,000 per recipient per year — and it doesn't touch the lifetime exemption. For parents with multiple children and grandchildren, systematic annual gifting adds up meaningfully over time.

**Using the lifetime exemption while it's elevated.** Gifts made before December 31, 2025 that use a portion of the current $13,990,000 exemption lock in that exclusion amount regardless of what happens to the law. Strategies like spousal lifetime access trusts (SLATs) or irrevocable trusts can move assets out of a taxable estate while still providing some access to the transferred wealth.

**Irrevocable life insurance trusts (ILITs).** Life insurance held inside an irrevocable trust is generally excluded from the taxable estate. For families who need liquidity at death — to pay estate taxes or equalize an inheritance among heirs — this remains one of the more straightforward tools available.

**Charitable strategies.** Charitable remainder trusts, donor-advised funds, and qualified charitable distributions from IRAs can reduce a taxable estate while accomplishing giving goals. For charitably inclined families, these deserve a hard look alongside other gifting strategies.

What Remains Uncertain

The sunset isn't a certainty — Congress could extend the current exemption, modify it again, or let it lapse as written. The outcome is genuinely unpredictable, and any content that treats a specific legislative outcome as guaranteed would be misleading.

That uncertainty isn't a reason to wait. Most of the strategies above — systematic gifting, trust planning, insurance structuring — take time to implement properly and require coordination among financial advisors, estate attorneys, and tax professionals. Starting the conversation now doesn't lock you in. It gives you options.

The families who act thoughtfully before year-end will have those options. The families who wait may find themselves reacting to a changed law rather than planning ahead of it.

The Right Starting Point

Estate planning conversations have a reputation for being uncomfortable — they require confronting mortality, estimating future asset values, and involving attorneys alongside financial planners. That complexity is real. But the cost of having the conversation is low compared to the cost of missing a planning window that, once closed, doesn't reopen.

If your estate is approaching or above the post-sunset threshold, or if you have appreciated assets and haven't revisited your plan recently, this is the year to take a closer look. I'd welcome the chance to walk through what the potential sunset means for your specific situation.

This content is for informational and educational purposes only and does not constitute investment, tax, or legal advice. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal. The information above reflects 2025 law and proposed sunset provisions under current legislation; tax laws are subject to change, and no specific legislative outcome is guaranteed. Please consult with a qualified financial, tax, or legal professional before making any financial decisions.