National Estate Planning Awareness Week, held the third week of October, is a good reminder that tax law and estate plans don't always move together. The One Big Beautiful Bill Act, signed in July 2025, set the federal estate, gift and generation-skipping transfer (GST) tax exemption at $15 million per person in 2026, or $30 million for a married couple. It also removed the scheduled drop-off and indexes the amount for inflation going forward.

 

Many high-net-worth plans were drafted when the exemption was far lower, or in a rush before the expected 2026 sunset. Some of those plans may now work against you.

 

Key takeaways

• The federal estate, gift and GST exemption is $15 million per person in 2026, with no scheduled sunset
• Formula clauses in older trusts can misdirect assets at today's exemption levels
• For many families, capital gains and basis step-up now matter more than estate tax
• A portability election can preserve up to $15 million of a spouse's unused exemption
• Flexible drafting protects your plan if Congress changes the law again

How the exemption has changed

 

Year	Federal exemption per person
2017	$5.49 million
2018	$11.18 million
2024	$13.61 million
2025	$13.99 million
2026	$15 million

 

A plan signed in 2015 was written for a world with roughly one-third of today's exemption. The documents may still be legally valid, yet no longer do what you intended.

 

1. Check your formula clauses

 

Many older trusts split assets at death using a formula tied to the exemption amount. At $15 million, a formula meant to fund a modest family trust could send nearly everything there, leaving a surviving spouse with less control and income than intended.

 

2. Rethink the income tax side

 

With fewer estates owing federal estate tax, the bigger tax issue is often capital gains. Assets included in your estate at death generally receive a step-up in basis, which can erase built-in gains. Assets in an irrevocable credit shelter trust usually don't get a second step-up when the surviving spouse dies. Flexible tools, such as disclaimer trusts and carefully drafted powers of appointment, can help capture both benefits.

 

3. Don't skip the portability election

 

When the first spouse dies, the unused exemption can pass to the survivor, but only if the estate files a federal estate tax return to elect portability. Many families skip it when no tax is due. For a high-net-worth couple, that mistake can waste up to $15 million of exemption.

 

4. Revisit gifts made in 2024 and 2025

 

Many families made large gifts to spousal lifetime access trusts (SLATs) or other irrevocable trusts before the expected sunset. Those gifts still remove future growth from your estate. It's worth reviewing how they're invested, who serves as trustee and whether the trust still fits your family.

 

5. Plan for change

 

"Permanent" in tax law lasts only until Congress acts again. Building flexibility into your documents, through trust protectors, decanting authority and powers of appointment, lets your plan adapt without starting over.

 

6. Don't ignore state tax exposure

 

If you still own property in a state with its own estate tax, that state's exemption may be as low as $1 million. Your plan should address both.

 

A structured review

Our Strategic Estate Planning System® is built to keep sophisticated plans current. Learn more about our approach to estate and gift tax planning.

 

Example: when a formula clause backfires

 

A couple signed their joint trust in 2012, when the exemption was about $5 million. Their trust says that at the first death, "the maximum amount that can pass free of federal estate tax" goes into a family trust for the children, and the rest goes to the surviving spouse.

 

In 2012, that meant about $5 million to the family trust and the balance to the spouse. If the husband dies in 2026 with a $14 million share, the formula could send the entire $14 million to the family trust. His widow would receive nothing outright and would depend on the trustee for distributions. The assets in the family trust would also miss a second step-up in basis at her death.

 

A review could replace the formula with a disclaimer or "Clayton" provision, which lets the family decide after the first death how much to place in each trust.

 

Who still needs to worry about estate tax

 

Even at $15 million, federal estate tax remains a real concern for:

• Married couples with estates approaching or above $30 million
• Families holding fast-growing assets, such as a private business or concentrated stock
• Single individuals, widows and widowers with estates above $15 million who didn't preserve a spouse's exemption
• Owners of illiquid assets, like real estate or closely held companies, where heirs may need to sell to pay tax
• Anyone with property in a state that imposes its own estate tax

At a 40% federal rate, every $1 million above the exemption can cost heirs $400,000.

 

What to bring to your review

• Your current will, trust and all amendments
• Any irrevocable trusts, including SLATs, insurance trusts and gifting trusts
• Recent gift tax returns (Form 709)
• Beneficiary designations for retirement accounts and life insurance
• A current balance sheet of assets, including how each is titled
• Business agreements, such as operating agreements and buy-sell agreements

Frequently asked questions

 

What is the federal estate tax exemption in 2026? It is $15 million per person, or $30 million for a married couple, and it will be adjusted for inflation in future years.

 

Is the $15 million exemption permanent? The law has no sunset date, but Congress can change it in the future.

 

Do I need to file an estate tax return if no tax is owed? Not always, but filing to elect portability can preserve a deceased spouse's unused exemption for the survivor.

 

How long do I have to file for portability? If no estate tax return is otherwise required, the IRS generally allows up to five years after death to file a return solely to elect portability.

 

What is a Clayton QTIP trust? It's a trust design that lets the personal representative decide after the first spouse's death how much goes into a marital trust. It gives the family flexibility to choose the best tax outcome.

 

Should I undo gifts I made before the exemption increased? Usually not. Those gifts still remove future growth from your estate. A review can confirm the trusts are invested and administered well.

 

Review your plan this Estate Planning Awareness Week

 

Board-certified attorney James Nici has advised high-net-worth Naples families for more than 30 years. Call Nici Law Firm at 239-449-6150 to schedule a review.

 

This article is for general information and is not legal or tax advice.