Educational information, not individual financial advice.
Key Takeaways
The federal estate and gift tax exemption is the amount each person can transfer during life and at death without triggering federal tax. At $15 million per individual in 2026 — $30M for married couples with portability — it's high enough that only a tiny fraction of families face federal estate tax.
Federal estate tax exemptions over time:
The TCJA-era jump from $5M to $11M+ was scheduled to sunset on December 31, 2025, reverting to roughly $7M. The One Big Beautiful Bill Act (OBBBA) passed in 2025 prevented the sunset and set a new permanent baseline of $15M, indexed for inflation going forward.
Congress can still change this in future legislation. Planners generally work with the current number while recognizing that political changes could lower it.
The exemption is actually a unified credit that combines estate and gift taxation. Gifts during life reduce the remaining exemption available at death:
Annual exclusion gifts ($19,000 per recipient per year in 2026) don't count against the lifetime exemption — they're separate.
Before 2011, if one spouse died without using their full exemption, the unused portion was wasted. Couples had to use elaborate "bypass trust" structures to capture it.
Portability (made permanent in 2013) solves this. The Deceased Spousal Unused Exclusion (DSUE) can be ported to the surviving spouse. The couple effectively has a combined $30M exemption.
Portability is NOT automatic. The estate of the first-to-die must file Form 706 (estate tax return) within 5 years (special extended window for qualifying small estates) to make the election, even if no tax is owed.
This is a common and costly oversight. An estate of $5M that doesn't file Form 706 loses the unused DSUE. If the surviving spouse later grows the estate above their own $15M exemption, the missed portability could cost millions.
For any couple with combined assets approaching the federal exemption, filing Form 706 at the first death is standard practice regardless of immediate tax owed.
Historically, bypass trusts (also called credit shelter trusts or family trusts) were the main tool for using both spouses' exemptions. Assets up to the exemption went into the trust at first death, providing the surviving spouse with income (usually) and principal (as needed) during life, then passing to beneficiaries at second death.
Portability has reduced the need for bypass trusts, but they still offer:
For large estates ($15M+ after combining), bypass trusts are often still used alongside portability. For smaller estates, portability alone is simpler.
The unlimited marital deduction doesn't apply when the surviving spouse is not a U.S. citizen — gifts and bequests to non-citizen spouses above certain limits can trigger tax.
Solutions:
Federal exemption applies only to federal estate tax. Many states have their own, often with much lower exemptions (see "State-Level Estate Taxes"). Some states don't have portability at all — meaning a state-level bypass trust may still be necessary even when the federal plan relies on portability.
Generation-skipping transfer (GST) exemption equals the estate/gift exemption. In 2026, that's $15M per individual. Transfers to skip-persons (grandchildren and beyond) above the GST exemption face an additional 40% GST tax on top of estate/gift tax.
GST exemption is generally not portable between spouses the way estate/gift exemption is. This creates planning complexity for larger estates using generation-skipping structures.
Estate under $10M, single person: no federal concern. Focus on will, POAs, beneficiary designations.
Estate $10–15M, single person: approaching the exemption. Monitor asset growth; consider gifting and inter vivos trusts if expected to cross.
Estate $15M–$30M, married: with portability, no federal tax. Focus on state tax, if any, and efficient asset titling.
Estate above $30M, married: active estate tax planning warranted. Lifetime gifting, irrevocable trusts (SLAT, GRAT, ILIT), charitable strategies.
Horizons calculates your projected federal estate tax based on your asset trajectory, the current exemption, and portability rules you've configured. The gifting strategy tool shows how annual exclusion gifts and lifetime gifts reduce the projected estate over time.
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