Tax Efficiency

The One Big Beautiful Bill Act (Pub. L. 119-21), signed July 4, 2025, permanently extended the elevated estate and gift tax exemption. For 2026, the IRS has set the basic exclusion amount at $15,000,000 per individual ($30,000,000 for married couples electing portability). This is indexed for inflation annually under IRC §2010(c)(3) as amended by OBBBA §201. The estate and gift tax rate remains at 40% on amounts exceeding the exemption. The generation-skipping transfer (GST) tax exemption mirrors the estate tax exemption at $15,000,000.

• Exemption permanently fixed at inflation-adjusted level — no sunset
• $15M per person / $30M per married couple (2026)
• 40% flat rate on taxable estate above exemption
• GST exemption matches estate tax exemption
• Anti-clawback rule (T.D. 9884) protects pre-death gifts if exemption ever decreases

The annual gift tax exclusion for 2026 remains at $19,000 per donee (unchanged from 2025). Married couples splitting gifts can give $38,000 per donee without using any lifetime exemption. The non-citizen spouse annual exclusion is $194,000 for 2026. Strategic use of annual exclusions can transfer significant wealth over time. A couple with 3 children and 6 grandchildren can transfer $342,000 per year ($38,000 × 9 recipients) completely tax-free.

• $19,000 per donee (single) / $38,000 per donee (married, split gifts)
• $194,000 annual exclusion for gifts to non-citizen spouses
• No limit on number of donees
• 529 plan superfunding: 5 years of exclusions in one year ($95,000 / $190,000)
• Crummey powers enable trust gifts to qualify for annual exclusion

OBBBA raised the state and local tax (SALT) deduction cap from $10,000 to $40,000 for 2025, with annual increases of $1,000 through 2029. For 2026, the effective cap is $40,000 (with phase-out beginning at $500,000 AGI for joint filers). The SALT provisions sunset after 2029 unless extended. For estate planning, high state income taxes may create incentive for domicile planning to states without income tax (FL, TX, NV, WY, SD, AK, WA, NH, TN).

• $40,000 SALT cap for 2026 (up from $10,000 under TCJA)
• Phase-out begins at $500,000 AGI for joint filers
• $1,000 annual increase through 2029 sunset
• Domicile planning can eliminate state income tax exposure entirely
• PTET (pass-through entity tax) workarounds available in many states

Thirteen states and DC impose their own estate taxes with exemptions significantly lower than the federal level. This creates a "state estate tax gap" where estates may owe state tax even when fully sheltered from federal tax. Key states: Oregon ($1M exemption), Massachusetts ($2M, cliff — full estate taxed if exceeded), Washington ($2.193M, top rate 20%), New York ($7.16M, cliff at 105% of exemption), Connecticut ($15M, mirrors federal), Illinois ($4M), Minnesota ($3M), Maryland ($5M — only state with both estate and inheritance tax), Vermont ($5M), Maine ($6.8M), Hawaii ($5.49M), Rhode Island ($1.774M), DC ($4.71M).

• Oregon and Massachusetts have lowest thresholds ($1M and $2M)
• MA and NY have "cliff" provisions — exceeding threshold taxes entire estate
• Washington has highest top rate at 20%
• Maryland uniquely imposes both estate tax and inheritance tax
• Connecticut is only state matching federal $15M exemption
• 6 states have inheritance taxes: KY, MD, NE, NJ, PA (Iowa repealed 2025)