Estate Tax Exemption Sunset Planning

Remember the great estate tax cliff of 2026, the one every advisor warned you about for years? It didn’t happen. The One Big Beautiful Bill Act repealed the scheduled sunset and locked the federal estate and gift exemption at $15,000,000 per person for 2026, permanent and indexed for inflation starting in 2027. The deadline that drove a frenzy of rushed trusts is gone.

What was supposed to happen, and what happened instead

For most of the last decade the exemption was riding a temporary boost set to expire at the end of 2025. On January 1, 2026, it was slated to roughly cut in half. Families with $10M, $15M, $20M estates were told to use the high exemption or lose it, and a lot of irrevocable trusts got signed under that clock.

Then the law changed. The exemption didn’t fall. It rose to $15,000,000 per person, $30,000,000 for a married couple, and Congress made it permanent rather than temporary. Indexing kicks in for 2027, so it climbs with inflation from here.

That single change rewrites the planning. The old game was beat the deadline. The new game is use a stable, generous exemption well, and that is a calmer, smarter game.

The hidden price of having planned for a sunset that vanished

Here’s the part that stings. Plenty of families locked assets into irrevocable trusts to grab the exemption before it disappeared. The exemption then didn’t disappear. Some of those people gave up control, and the step-up they would have gotten at death, for a tax that may never touch them.

When you hold an appreciated asset until you die, your heirs get a step-up in basis, meaning the asset’s cost basis resets to its date-of-death value and the built-in capital gain evaporates. Give that same asset away during life and the recipient inherits your old, low basis along with the gain. So for a family comfortably under $15M (or $30M as a couple), aggressive lifetime gifting can manufacture a capital gains bill to dodge an estate tax that was never going to apply. That’s the tax tail wagging the dog. I see it constantly: people so focused on one tax they walk straight into another.

Who still needs to plan, and how the math changed

The exemption being permanent doesn’t mean estate planning is dead. It means it got more targeted.

You still have real work if any of these fit:

• Your estate clears $15M single or $30M married, or it’s on track to. A business, concentrated stock, or real estate that compounds can blow past the line. Locking in today’s exemption with a grantor trust or moving fast-growing assets out early still pays.
• You live in a state with its own estate tax. This is the one most people forget. New York taxes estates above roughly $7,350,000 for 2026, less than half the federal number, and it has a brutal cliff: go about 5% over the line and the entire estate gets taxed, not just the excess. A New York family worth $8M owes the state nothing federally and a real bill to Albany. See NY estate tax threshold and cliff.
• Your wealth is growing faster than the exemption indexes. Indexing tracks inflation. A good portfolio or a scaling business doesn’t. The gap between what you own and what’s shielded can widen even with a permanent exemption.

What to actually do now

The pressure is off, so use the room to plan instead of react.

• Recheck whether you ever cross the federal line. If you’re well under $15M (or $30M), favor holding appreciated assets for the step-up over giving them away.
• Run your state numbers separately. The federal headline tells you nothing about your New York exposure.
• If you do face federal tax, lock in today’s high exemption deliberately, not in a panic, using annual gifting and the right trust.
• Model it before you commit. The estate tax projection tool shows where you’ll actually land.

The cliff you braced for got cancelled. That’s a gift. The families who win from here aren’t the ones who rushed, they’re the ones who now have the time to do it right.