With the federal exemption now permanently set at $15M per person / $30M per married couple, the federal estate tax is now a tax on carelessness; the sloppy ones are the people who still pay. They miss an election, mistitle an asset, own insurance personally, or ignore tax requirements from other jurisdictions. The exemption is so large that exposure can only come from neglect.
OBBBA, signed July 4, 2025, made the federal estate, gift, and generation-skipping transfer tax exemption permanent at $15M per individual and $30M per married couple with portability, effective January 1, 2026, and indexed for inflation starting in 2027. The top federal rate is unchanged at 40%. The annual gift exclusion is unchanged at $19,000 per recipient in 2026, or $38,000 per couple with gift-splitting. IRS data shows fewer than 0.2% of estates pay federal estate tax. The exemption is set so high that the federal estate tax affects almost no one, making the permanent increase largely a protection for a very small, wealthy slice of the population.
Estate planning in 2024–2025 took a “use it or lose it” approach, with attorneys pushing clients to gift before the sunset. That urgency is gone. Gifts made in 2024–2025 under the elevated exemption are protected from clawback under Rev. Proc. 2022-32. For clients who acted on that urgency and made large gifts specifically out of fear that the exemption would drop back to roughly $7M, the relief is permanent and their gifts stand. The IRS cannot retroactively tax those gifts, and their decision to act while driven by uncertainty was the right one. With the exemption now permanent, clients have a decade or more to plan transfers carefully, without the pressure of an expiring deadline.
Estate tax is not mandatory in the way income tax is — it only applies if you fail to plan around it, and often avoidable or reducible with proper planning. People on the “Sloppy List” who still pay include:
- Those who miss a portability election: Form 706 must be filed within nine months of death (fifteen with extension) even when no estate tax is owed, to bank the surviving spouse’s unused exemption. Missing it forfeits up to $15M.
- Those who leave beneficiary designations stale or missing: IRAs, 401(k)s, and life insurance become payable to the estate instead of to named beneficiaries. This drags the money through probate and, potentially, into the taxable estate.
- Assets that get titled wrong: Joint accounts with children can trigger unintended gifts, and property held outright passes through probate instead of by trust or beneficiary form.
- Life insurance owned personally brings proceeds back into the estate: when the insured owns the policy at death, the IRS includes the full death benefit in the taxable estate. An ILIT owns the policy instead, keeping the proceeds out of the estate while still delivering liquidity to heirs.
Finally, there are those who simply have no plan at all, on the theory that the high exemption means they don’t need one. The exemption doesn’t automatically protect an estate. The owner must actively move assets, structure transfers, and make elections to apply it. The exemption is a tool; without a plan to use it, the opportunity for tax-free wealth transfer is lost.
The federal exemption is only part of the picture. Many states impose their own estate or inheritance tax with a far lower exclusion and no spousal portability, some cities layer on an additional tax, and foreign assets or non-citizen spouses can trigger separate exposure entirely. A plan built only around the federal number can still leave a family exposed at the state, city, or international level, so it’s worth checking the rules wherever the decedent lives, owns property, or holds assets.
Every owner has concrete moves available to ensure the exemption works for them rather than goes to waste. Here are some steps that can protect an estate from tax exposure:
- Annual exclusion gifts of $19,000 per recipient in 2026 ($38,000 split between spouses) move money out of the estate. For example, a couple with 12 recipients can move $456,000 a year this way.
- Direct tuition and medical payments are unlimited, gift-tax free, and don’t touch the exemption, making them a real lever for grandparents funding college.
- Filing the portability election on Form 706, even when no tax is owed, is the single cheapest way to protect $15M.
- Couples in a state without spousal portability need a credit shelter or bypass trust so both exclusions get used.
- An ILIT removes life insurance proceeds from the estate and funds estate-tax liquidity.
- Charitable strategies like CRTs and DAFs reduce the taxable estate and the income tax in one move.
- With the exemption now permanent, holding appreciated assets to death for the step-up often beats gifting carryover basis. Though gifting still compounds appreciation out of the estate, it has to be weighed per asset. And because IRAs don’t step up at death and heirs owe income tax under the 10-year rule for inherited accounts, Roth conversions on large IRA balances shrink the estate now and leave heirs tax-free assets later.
At $15M/$30M, the federal estate tax touches almost no one; those it does reach largely got there through inaction. The exemption is large enough that exposure is more like a choice than a risk. The practical steps are well established: confirm the estate plan exists and is current, check beneficiary designations, understand any state or local thresholds, and ensure the portability election is filed timely. That is the entirety of what separates a protected estate from a taxable one.
This material has been prepared for informational purposes only, and is not intended to provide or be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
