Estate tax planning: 2026 and beyond
The federal estate tax landscape changed materially on July 4, 2025, when the One Big Beautiful Bill Act (P.L. 119-21) was signed into law. The legislation eliminated the previously scheduled 2026 sunset of the higher estate tax exemption that had been in place since 2018, and it set a new permanent exemption of $15 million per individual for 2026 and beyond. For most families, the practical effect is that federal estate tax is no longer a meaningful concern. For families with significant wealth, the planning conversation has shifted from how to dodge a sunset to how to use a higher exemption efficiently.
Let me be very clear with you: only a tiny fraction of estates actually owe federal estate tax. According to the Congressional Research Service, roughly 0.07 percent of decedents pay any federal estate tax under exemption levels in this range. If your estate is well below $15 million per individual or $30 million per married couple, the federal estate tax is not your problem. What matters more for you is the rest of estate planning: making sure your assets pass to the right people, with the right structures, in a way that minimizes friction for your family.
That said, even families well below the federal threshold should understand the basics, because the exemption can change with future legislation, asset values can grow, and state estate taxes (in 12 states plus DC) often have much lower thresholds. This page walks through what the 2026 federal estate tax actually is, how the planning structures work, and when each one earns its keep.
If you would rather have this conversation directly, you can reach our office at 919-647-9599.
The 2026 federal estate tax framework
Federal estate, gift, and GST tax exemptions for 2026 (United States)
For estates of decedents dying in calendar year 2026, the federal estate and gift tax basic exclusion amount is $15,000,000 per individual, or $30,000,000 per married couple with proper portability planning. The exemption was established by Section 70106 of the One Big Beautiful Bill Act (Public Law 119-21), signed into law on July 4, 2025, which amended Internal Revenue Code Section 2010(c)(3). The 2026 exemption was confirmed by the IRS in Revenue Procedure 2025-32, released October 9, 2025 (IR-2025-103). The previously scheduled 2026 sunset of the higher exemption was eliminated; the $15,000,000 amount is now permanent and will be indexed for inflation beginning in 2027. The generation-skipping transfer (GST) tax exemption is unified with the estate and gift tax exemption at $15,000,000 per individual for 2026. The annual gift tax exclusion for 2026 is $19,000 per recipient (unchanged from 2025), and the annual exclusion for gifts to a non-citizen spouse is $194,000. Estates that exceed the $15,000,000 exemption are taxed at 40 percent on the excess. According to the Congressional Research Service, approximately 0.07 percent of decedents pay any federal estate tax under exemption levels in this range.
And quite candidly, for the overwhelming majority of clients we work with, the $15 million exemption means the federal estate tax conversation is brief. The planning shifts to other concerns: making sure the right people inherit, that the assets pass efficiently, that incapacity is handled, and that state-level taxes in other states do not create surprises.
How the exemption actually works
The $15 million exemption is sometimes misunderstood as a tax-free amount that applies separately to gifts and to estates. It does not. The exemption is unified, meaning that the same $15 million covers both lifetime gifts and the estate at death.
The unified credit
Every dollar you give away during your lifetime that exceeds the annual gift tax exclusion ($19,000 per recipient in 2026) reduces your remaining $15 million exemption. If you give a child $200,000 above the annual exclusion in 2026, your remaining exemption at death drops by approximately $200,000 (subject to certain adjustments for indexing). At death, the estate and gift tax is calculated against your gross estate plus your adjusted taxable lifetime gifts, with credit for the exemption you have left.
This is why high-net-worth lifetime gifting is a strategic decision, not just a generosity decision. You are choosing whether to use exemption now or save it for later, and which assets you want to remove from your estate before they appreciate further.
Portability and the deceased spousal unused exclusion
Portability of the deceased spousal unused exclusion (DSUE)
If a married individual dies without using the full $15 million exemption, the surviving spouse may inherit the unused portion (called the deceased spousal unused exclusion, or DSUE) and add it to the surviving spouse's own exemption. This is known as the portability election. Portability is not automatic. To elect portability, the executor of the deceased spouse's estate must file a complete and timely federal estate tax return (Form 706) for the deceased spouse, even if the estate is below the filing threshold and would not otherwise need to file. The election is made by completing Part 6 of Form 706. Form 706 is generally due within nine months after the decedent's date of death. An automatic six-month extension is available by filing Form 4768 before the original due date. For estates that are not otherwise required to file Form 706 (because the gross estate is below the filing threshold), Revenue Procedure 2022-32 extends the deadline for filing a portability-only return to five years after the decedent's date of death. The return must include a statement that it is filed pursuant to Rev. Proc. 2022-32. Important limitations: (1) DSUE applies only to the federal estate and gift tax exemption. The GST exemption is NOT portable; each spouse's GST exemption either gets used during life or at death, or it is lost. (2) DSUE is not adjusted for post-death inflation. The amount inherited from the deceased spouse is fixed at the date of death. (3) The 'last deceased spouse' rule applies. If the surviving spouse remarries and the new spouse predeceases the surviving spouse, the original DSUE is replaced by any DSUE from the new last deceased spouse, which can be substantially less.
The portability election is one of the most important and most commonly missed planning opportunities for married couples. We routinely see surviving spouses who could have inherited several million dollars of unused exemption from a predeceased spouse but did not, because no Form 706 was filed within the required window. I want to strongly encourage you to file the portability election when a spouse dies, even if the estate is well below the filing threshold and you do not believe federal estate tax will ever be a concern. Asset values grow, exemptions can be reduced by future legislation, and the cost of filing the portability return is small compared to the potential tax savings.
The GST exemption: similar but not portable
The generation-skipping transfer tax (GST) is a separate tax that applies to transfers made to grandchildren, more remote descendants, or unrelated individuals more than 37.5 years younger than the donor. The GST tax rate is 40 percent, the same as the estate and gift tax rate, and it is in addition to any estate or gift tax that may also apply to the transfer.
Each individual has a GST exemption of $15 million for 2026, unified with the estate and gift tax exemption. That means the same pool of exemption protects estate transfers, lifetime gifts, and generation-skipping transfers. Use of any portion for one purpose reduces the amount available for the others.
The critical difference between the GST exemption and the estate/gift exemption is that the GST exemption is not portable between spouses. If one spouse dies without using the full GST exemption, that exemption is gone. For families considering long-term, multigenerational trusts (often called dynasty trusts), this nonportability rule is one of the most important reasons to use specific GST planning structures rather than relying on portability.
State estate tax considerations
North Carolina repealed its state estate tax effective January 1, 2013, so NC residents are subject only to the federal estate tax. This is a meaningful planning advantage compared to residents of states with their own estate tax. As of 2026, twelve states and the District of Columbia still impose a state estate tax: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington.
Most of these states have exemption thresholds well below the federal $15 million. Oregon has the lowest exemption at $1 million. Massachusetts is at $2 million. Washington's threshold sits just above $3 million in 2026 and becomes a fixed $3 million on July 1, 2026. Even for clients whose federal estate tax is not a concern, owning property (especially real estate) in any of these states can trigger state-level estate tax exposure. If you own a vacation home in Massachusetts, a condo in New York, or any real property in one of the state-estate-tax jurisdictions, that property may be subject to that state's estate tax even if you are domiciled in North Carolina.
This is one of the most common surprises we see. A client whose total estate is far below the federal threshold owes state estate tax to Oregon or Massachusetts because of an out-of-state vacation home. The planning fix is usually some combination of titling, trust structures, or in some cases divesting the out-of-state property before death. The right answer depends on the specific facts.
Planning for estates below the $15 million threshold
If your total estate (including life insurance, retirement accounts, real property, and lifetime gifts) is well below $15 million per individual or $30 million per married couple, federal estate tax planning is not the central concern of your estate plan. The right planning focuses on the things that actually affect your family:
Use the marital deduction and portability
Married couples should ensure their plan takes full advantage of the unlimited marital deduction (which allows unlimited assets to pass to a surviving spouse free of estate and gift tax) and the portability election (which preserves the deceased spouse's unused exemption for the surviving spouse). For most couples, this combination means no federal estate tax will ever be paid, even if the surviving spouse's estate eventually grows above $15 million.
Be deliberate about lifetime gifts
Annual exclusion gifts ($19,000 per recipient in 2026, or $38,000 per recipient if you are married and your spouse joins the gift) do not use any of your $15 million lifetime exemption. They are a clean way to transfer wealth out of your estate over time, particularly if you have multiple children or grandchildren you want to support.
Direct payments for tuition (paid directly to the educational institution) and medical expenses (paid directly to the provider) are unlimited in amount and do not count against the annual exclusion or the lifetime exemption. These are powerful tools for grandparents helping grandchildren with college and parents helping adult children with significant medical bills.
Don't forget the step-up in basis
One of the most valuable features of the federal tax code for inherited assets is the step-up in basis under IRC Section 1014. When a beneficiary inherits an appreciated asset, the basis is reset to the fair market value at the date of death, eliminating the unrealized capital gains that accrued during the decedent's lifetime.
Example: you bought stock for $50,000 decades ago, and it is worth $500,000 when you die. Your heirs inherit the stock with a basis of $500,000. If they sell it the next day for $500,000, they owe zero capital gains tax. The $450,000 of appreciation that accrued during your lifetime is never taxed.
This rule survived the OBBB unchanged and continues to apply for 2026 and beyond. For families well below the federal estate tax threshold, this is often the single most important federal tax provision affecting estate planning. It also creates a strategic question for high-basis vs. low-basis assets: it is generally better to leave low-basis appreciated assets to heirs (who will get the step-up) than to give those assets away during your lifetime (where the heirs would inherit your original low basis).
Planning for estates above the $15 million threshold
If your total estate is approaching or above $15 million per individual or $30 million per married couple, federal estate tax planning becomes worth real effort. The general goal is to remove appreciating assets from your taxable estate while preserving access, control, or income as needed. Several tools accomplish this; each has tradeoffs.
Irrevocable life insurance trusts (ILITs)
Life insurance proceeds are included in your gross estate if you own the policy at death. For a $5 million life insurance policy on someone whose other assets already exceed $15 million, that policy adds $5 million to the taxable estate, potentially generating $2 million in federal estate tax.
An irrevocable life insurance trust solves this problem. You transfer ownership of the policy to the ILIT (or have the ILIT purchase a new policy), and the death benefit passes outside your estate. The trust beneficiaries receive the proceeds free of estate tax. ILITs require careful structuring (Crummey withdrawal powers for annual premium gifts, an independent trustee, three-year lookback rules for transferred policies under IRC Section 2035), but the planning is well-established.
Qualified personal residence trusts (QPRTs)
A qualified personal residence trust under IRC Section 2702 allows you to transfer your primary residence or vacation home into an irrevocable trust while retaining the right to live in the property for a specified term of years. At the end of the term, the property passes to your children (or to a continuing trust for their benefit), removing it from your taxable estate at a discounted gift tax value.
QPRTs are most effective when interest rates and home values support a significant valuation discount, when the grantor is reasonably likely to outlive the trust term, and when the property is one the family genuinely wants to keep across generations. If the grantor dies during the term, the property is pulled back into the taxable estate, defeating the planning.
Grantor retained annuity trusts (GRATs)
A grantor retained annuity trust under IRC Section 2702 allows you to transfer appreciating assets into an irrevocable trust while retaining the right to receive an annuity payment from the trust for a specified term. At the end of the term, any appreciation above the IRS-prescribed interest rate (the Section 7520 rate) passes to the trust beneficiaries free of gift tax.
GRATs are most effective in low-interest-rate environments and when the transferred assets are likely to appreciate substantially. They are commonly used for pre-IPO stock, closely held business interests, and concentrated investment positions with growth potential. As with QPRTs, the grantor must outlive the term for the planning to work.
Intentionally defective grantor trusts (IDGTs)
An intentionally defective grantor trust is an irrevocable trust structured so that the grantor remains responsible for the income tax on trust earnings (the trust is 'defective' for income tax purposes) while the assets are removed from the grantor's taxable estate for transfer tax purposes. The grantor's payment of the trust's income tax is itself a tax-free transfer of value to the beneficiaries, allowing the trust assets to grow without the drag of income taxes.
IDGTs are commonly used in conjunction with installment sales of appreciating assets, where the grantor sells assets to the trust in exchange for a promissory note. The transferred assets grow inside the trust, the grantor receives note payments back, and the appreciation passes to the next generation outside the taxable estate.
Charitable strategies
For families with significant charitable intent, structures like charitable remainder trusts (CRTs) and charitable lead trusts (CLTs) can combine tax-efficient wealth transfer with charitable giving. A charitable remainder trust pays income to the donor (or other non-charitable beneficiary) for a term of years, with the remainder passing to charity. A charitable lead trust does the opposite: charity receives an annual payment for a term, with the remainder passing to family beneficiaries. Each has specific tax mechanics that may or may not fit a particular family's situation.
Charitable bequests at death are deductible in unlimited amounts under IRC Section 2055, so a portion of a large estate can be directed to charity to reduce or eliminate the federal estate tax liability.
Form 706 mechanics: when, what, and how
Federal estate tax return (Form 706) filing requirements
An estate tax return on Form 706 must be filed if any of the following are true: (1) The decedent's gross estate, increased by adjusted taxable gifts and specific gift tax exemption, exceeds the basic exclusion amount for the year of death ($15,000,000 in 2026). (2) The estate elects portability of the deceased spousal unused exclusion (DSUE) to the surviving spouse, regardless of the size of the gross estate. (3) The decedent was a nonresident, non-citizen of the United States with U.S.-situated assets above the applicable threshold (Form 706-NA). Form 706 is generally due nine months after the date of death. An automatic six-month extension of time to file is available by filing Form 4768 on or before the original due date. Payment of any estate tax due is generally also required nine months after the date of death. Extensions of time to pay are more limited than extensions of time to file. Estates with significant illiquid assets (such as closely held business interests or real estate) may qualify for a deferred payment election under IRC Section 6166, allowing the tax to be paid in installments over up to 14 years. For estates filing Form 706 solely to elect portability of DSUE, Revenue Procedure 2022-32 allows the return to be filed within five years of the date of death, with no user fee required. The return must include a statement: 'FILED PURSUANT TO REV. PROC. 2022-32 TO ELECT PORTABILITY UNDER §2010(c)(5)(A).'
Form 706 is a substantial document. A complete return for a taxable estate typically requires professional preparation by an attorney or CPA experienced in estate tax. The return includes detailed schedules for every category of asset, supporting appraisals for hard-to-value assets, and calculations for any deductions and credits. For a portability-only filing, the requirements are simpler, and a special rule under Treas. Reg. § 20.2010-2(a)(7)(ii) relaxes the asset valuation requirements for property passing to a surviving spouse or to charity.
North Carolina specific considerations
As noted above, North Carolina does not impose its own estate tax. NC residents face only federal estate tax exposure. This is a planning advantage worth understanding.
That said, several NC-specific points matter:
• Out-of-state property exposure. Real property in another state is generally subject to that state's estate tax even for NC-domiciled decedents. NC residents who own vacation homes or investment property in Massachusetts, New York, Oregon, Washington, or any other state-estate-tax jurisdiction need to plan for the possibility of state-level estate tax in that other state.
• NC ancillary administration. If you own NC property and are domiciled in another state, your estate may need to file an ancillary administration in NC even if there is no estate tax liability.
• NC trust law for sophisticated planning. North Carolina's Uniform Trust Code (NCGS Chapter 36C) supports the full range of irrevocable trust structures used in advanced estate tax planning, including ILITs, QPRTs, GRATs, IDGTs, and dynasty-style trusts. NC has not adopted some of the more aggressive asset protection trust statutes available in states like Nevada, Delaware, or South Dakota, so families seeking that specific type of planning sometimes use those jurisdictions for the trust situs while remaining domiciled in NC.
A practical framework by estate size
Estates under $5 million
Federal estate tax is essentially never a concern at this level. The right planning focuses on the basics: a properly drafted will or trust, current beneficiary designations, durable powers of attorney, health care documents, proper account titling, and plans for guardianship of minor children if applicable. The estate tax exemption is more than 3x your estate, with significant cushion for growth.
Estates $5 million to $15 million
Federal estate tax is unlikely to be a concern under the OBBB framework, but the surviving spouse's eventual estate could approach the threshold over time. For this range, the standard planning is to make sure the marital deduction and portability election are correctly used, that lifetime gifting is deployed where appropriate, and that the plan accounts for state-level estate tax exposure in any other jurisdictions where you own property.
Estates $15 million to $30 million (per individual or per couple)
Federal estate tax becomes a real consideration. Married couples in this range should make sure both spouses' exemptions are fully used through portability or through credit shelter trust planning. Lifetime gifting strategies, ILITs for life insurance, and possibly QPRTs or GRATs become worth the conversation. State-level estate tax exposure in other states is also more material at this asset level.
Estates above $30 million
This is the range where the more sophisticated planning structures (IDGTs, dynasty trusts, charitable structures, business succession planning) earn their keep. The planning typically involves multiple layers of structures working together over many years, and the cost of getting it right is small relative to the potential transfer tax savings.
Common misconceptions about estate tax
Myth: 'estate tax planning is just for the wealthy'
True at the federal level for most families: with a $15 million per-individual exemption, federal estate tax planning is genuinely only relevant to a small percentage of estates. But state-level estate tax planning matters at much lower thresholds, and the basics of estate planning (will, trust, powers of attorney, beneficiary designations, account titling) matter at every wealth level. Don't conflate 'I will not owe federal estate tax' with 'I do not need an estate plan.'
Myth: 'a revocable trust avoids estate tax'
It does not. A revocable living trust does not, by itself, reduce or avoid federal estate tax, because you retain full control over the assets. The IRS treats revocable trust assets as part of your taxable estate at death under IRC Section 2038. Estate tax avoidance generally requires irrevocable structures (ILITs, QPRTs, GRATs, IDGTs) or charitable strategies. A revocable trust is excellent for probate avoidance, privacy, and incapacity planning, but it is not an estate tax tool.
Myth: 'I can give everything away to avoid estate tax'
Every dollar you give above the annual gift tax exclusion uses up your $15 million lifetime exemption. There is no tax-free way to gift unlimited amounts during your lifetime. Annual exclusion gifts ($19,000 per recipient in 2026), direct tuition payments, and direct medical expense payments are the unlimited categories. Everything else uses exemption.
Myth: 'the exemption could go down again'
Possible but not currently scheduled. The OBBB made the $15 million exemption permanent (subject to inflation indexing beginning in 2027), eliminating the previously scheduled 2026 sunset. A future Congress could change the law, but there is no current sunset built into the OBBB. The 2018-2025 cycle of 'use it or lose it' planning is over for now.
Where to go from here
If you want to dig deeper into related topics, the other spoke pages in this guide cover the foundational decisions:
• Will vs. Trust: A Decision Guide for Every Life Stage — when an irrevocable trust earns its keep for estate tax purposes, and when a simpler structure is enough.
• Probate Explained: How It Works in North Carolina and Beyond — the procedural side of estate administration, including how Form 706 fits with the broader probate process.
• Estate Planning Checklist by Life Stage — the decade-by-decade context that puts estate tax planning into the broader life-stage picture.
You can also review our supporting glossary nodes:
• Fiduciary — what fiduciary duty requires of a trustee handling sophisticated estate tax structures.
• Executor vs. Trustee — the two roles that anchor estate tax administration, including who files Form 706.
If we can help
Estate tax planning under the 2026 framework is genuinely simpler for most families than it was during the 2018-2025 sunset window. The $15 million exemption is high enough that most families will never owe federal estate tax. For families with significant wealth, the planning conversation has shifted from urgency-driven 'use it or lose it' to deliberate, multi-year strategies that preserve flexibility while minimizing transfer taxes.
If we can be of assistance to you, please reach out at 919-647-9599. You can also schedule a discovery call directly through our website. We will look at your specific situation, walk through the federal and state tax exposure honestly, and recommend planning that fits your facts.
Sources and authority: All federal tax authority and North Carolina statutory citations referenced on this page are listed in our
About the Author
Jason Walls, J.D., is the Founder and Chief Legal Officer of The Walls Law Group, a North Carolina law firm focused on helping business owners and families protect, preserve, and transfer wealth through estate, business, and asset protection planning.
This content was reviewed on July 7th, 2026. The information on this page reflects North Carolina law and federal authority current as of April 2026.
About the author
Jason Walls, J.D., is the founder of The Walls Law Group, a Wake Forest, North Carolina law firm focused on estate planning, business planning, and asset protection. Jason is licensed to practice law in North Carolina and has spent his career helping families and business owners build estate plans that work the way they expect when they need them most. The information on this page reflects North Carolina law and federal authority current as of April 2026.
This content is for general educational purposes only and is not legal, tax, or financial advice. Reading this page does not create an attorney-client relationship. Federal estate tax planning is highly fact-specific and depends on the size and composition of your estate, your family situation, the state in which you and your beneficiaries reside, and the way federal and state law apply to your specific circumstances. Before you act on anything in this guide, please speak with a licensed attorney in your state about your specific circumstances.
