By Jeffrey R. Wolfe, Senior Vice President and Manager, Wealth Planning Strategies
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Hopefully you are surviving the hustle and bustle of the holiday season and preparing for a fantastic 2026. As we wrap up the year-end financial to-do list, our last suggestion is to review your estate plan because the federal rules are now permanent, and this resolution may affect your legacy goals.
With the passage of the One Big Beautiful Bill Act (OBBBA) this year, the federal transfer tax laws have become “permanent.” Of course, the permanence of the rules is for as long as Congress doesn’t change them again, but for now we have a set of rules that is expected to remain unchanged for some time.
The OBBBA set the transfer tax exclusion amount to $15 million in 2026, which means someone can pass up to $15 million in wealth without paying the transfer tax. If you face the tax, the rate is 40% for taxable transfers. With proper planning a married couple can use each of their exclusions, meaning $30 million can be transferred tax free.
This exclusion is the largest it has ever been. Statistically, the larger exclusions mean that few estates face transfer tax concerns. For example, in 2022, when the exclusion was $12.06 million, nearly 2.8 million people died, but only 0.25% of those descendants filed an estate tax return, and only around 0.14% of all descendants paid any estate tax.[1] With the growing exclusion, the assumption is less and less estates will face the tax.
While the number of estates facing a tax is shrinking, the number of estate plans affected by the large exclusion is much more vast. In the 1990s, the estate tax exclusion was only $600,000. It “jumped” to $1 million in 2001, and has continued to climb ever since. That said, many estate plans were designed to take advantage of the “smaller” exclusion, especially for married couples. A common plan would call for a trust to be created at the first spouse’s death, typically funded up to the federal exclusion amount. With smaller exclusions, this planning made a lot of sense.
Fast forward to today, and this typical plan will likely mean all of the wealth attributed to the first spouse to die will pass via this trust plan. That means the surviving spouse will have to administer this trust, which entails understanding the rules on how the assets may be utilized. Additionally, the trust will require its own income tax return, future beneficiaries (a.k.a. children/grandchildren) likely will have rights to accountings, copies of the trust document, etc. In short, the trust creates significant administrative obligations. Moreover, these trusts are usually irrevocable at the first spouse’s death, meaning if the surviving spouse wishes to change the plan, they likely cannot.
Therefore, if you’ve created a will or trust and it has any sort of federal transfer tax planning in it, now is the time to review the plan to make sure your legacy goals are still being met. Perhaps leaving assets to a surviving spouse outright, or in a more flexible trust makes sense? Maybe you’d rather leave only some money in an irrevocable trust versus all of your assets? Regardless of your goals, anytime there is a change in the law it is a good idea to review your plan, and this new permanent exclusion changes the transfer tax law.
On the flip side, the larger exclusion may free up your ability to make transfers today. The ability to make taxable gifts of up to $15 million can provide substantial opportunities to transfer wealth for those able to afford them. Instead of part of a family vacation home or business, at these thresholds the entire asset may be able to be transferred. Moreover, gifting now shifts the future appreciation and income stream of the assets from your estate to your beneficiaries. These gifts can be outright to beneficiaries or structured in trusts. With proper planning, transfers to trust for your beneficiaries can allow you some control over the use of the gifted assets and perhaps the ability to protect the gifted assets from potential creditors of your beneficiaries. It is important to remember that use of the lifetime exclusion reduces your estate tax exclusion amount dollar for dollar. Also, your beneficiary receives your cost basis in the gifted asset, which may cause income tax consequences down the line should the asset be sold.
In conclusion, the change in the transfer tax law means there’s been a trigger to review your plan. Work with your tax and legal advisors, in partnership with your financial advisor, to review that your legacy planning remains as you wish.
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.