2026 Estate Tax Exemption: $15 Million Per Person Plus the $19,000 Annual Gift Exclusion
Federal Estate Tax Exemption: What changed for 2026
The 2026 estate tax exemption is $15,000,000 per person, an increase from the $13,990,000 exemption that applied in 2025. For Federal Estate Tax Exemption, the inflation adjustment under §2010 followed the standard Chained-CPI methodology that adjusts most tax thresholds annually. The annual gift tax exclusion under §2503(b) remains $19,000 per donee for 2026, unchanged from 2025. Annual exclusion adjustments occur in $1,000 increments only when cumulative inflation crosses the rounding threshold, which did not happen between 2025 and 2026.
The substantive change for 2026 is the One Big Beautiful Bill Act extension of the elevated exemption. OBBBA, signed into law on July 4, 2025 (P.L. 119-21), extended the elevated estate and gift tax exemption that originated in the 2017 Tax Cuts and Jobs Act for an additional nine years. The original TCJA exemption was scheduled to sunset on December 31, 2025, with the exemption dropping back to roughly half its 2025 level (approximately $7,000,000 per person plus subsequent inflation adjustments). OBBBA replaced the December 31, 2025 sunset with a new December 31, 2034 sunset, giving families an additional nine years to plan around the elevated exemption.
The new 2034 sunset means the planning urgency that built up through 2024 and 2025 has been substantially reduced but not eliminated. Families who completed substantial gifting in 2024 or 2025 to lock in the high exemption before the original sunset have not lost anything, because the anti-clawback regulations under Treas. Reg. §20.2010-1(c) protect gifts made under the high exemption even if the exemption later decreases. Families who were planning to complete gifting before the end of 2025 but did not finalize have more breathing room. The decision to gift now versus later in the eight-year window comes down to growth expectations, family dynamics, and the family’s risk tolerance about future legislative changes.
Annual inflation adjustments will continue between 2026 and 2034, so the exemption will grow over time. Based on projected Chained-CPI inflation, the 2027 exemption will likely be in the $15.4M range, 2028 around $15.8M, and so on. By 2034, the exemption could be in the $19M to $21M range per person if inflation runs at the long-term average of 2.5 to 3 percent. Families running long-term estate plans should model the exemption increases when projecting their estates against future thresholds.
The $15 million per-person exemption
The $15,000,000 exemption under §2010 is the cumulative amount of taxable transfers (lifetime gifts plus transfers at death) that can be made without triggering federal estate or gift tax. The exemption is unified, meaning lifetime gifts and transfers at death share a single $15,000,000 bucket. A taxpayer who makes $5,000,000 of taxable lifetime gifts (above the annual exclusion) has $10,000,000 of remaining exemption available at death. A taxpayer who uses zero exemption during life has the full $15,000,000 available at death.
Taxable transfers are the amount of transferred value above any applicable exclusion or exemption. The annual gift tax exclusion of $19,000 per donee shields routine gifting from counting against the lifetime exemption. Gifts above $19,000 per donee per year require filing a Form 709 gift tax return to report the excess against the lifetime exemption. No tax is actually paid until the cumulative lifetime exemption is exhausted, but the Form 709 tracks the running balance.
The estate tax rate on transfers above the exemption is 40 percent under §2001(c). This is a flat rate, not a graduated rate, so every dollar of taxable estate above the exemption produces 40 cents of federal estate tax. A $20,000,000 estate with $15,000,000 of exemption pays $2,000,000 in federal estate tax (40 percent times $5,000,000 of taxable estate). State estate or inheritance taxes apply in many states (New York, Massachusetts, Oregon, Washington, and others) and add to the federal tax bill. The combined federal-plus-state estate tax can exceed 50 percent of the taxable estate in some states.
Generation-skipping transfer (GST) tax under §2601 applies separately to transfers that skip a generation (typically to grandchildren or more remote descendants). The GST exemption for 2026 is $15,000,000, same as the estate tax exemption, and the GST tax rate is also 40 percent. The GST tax is in addition to the regular estate or gift tax on the same transfer, so a transfer to grandchildren that exceeds both the estate exemption and the GST exemption can effectively be taxed at 64 percent (40 percent estate tax plus 40 percent GST tax, less the deduction for the estate tax). GST planning is essential for families with multigenerational wealth transfer goals and requires specific attention separate from the regular estate exemption planning.
The $19,000 annual gift exclusion
The annual gift tax exclusion under §2503(b) shields up to $19,000 per donee per year from gift tax and from counting against the lifetime exemption. There is no limit on the number of donees, so a taxpayer can gift $19,000 to each of 100 different recipients in a single year without using any lifetime exemption. Common applications include gifting to children, grandchildren, in-laws, friends, and other family members at any level of relationship. The annual exclusion is per donor per donee, so each spouse in a married couple has their own $19,000 exclusion per donee.
Married couples can combine their annual exclusions through gift-splitting under §2513. A married couple can gift $38,000 to a single donee in 2026 without using any lifetime exemption, either by each spouse writing a check for $19,000 or by one spouse writing a $38,000 check and the couple electing gift-splitting on Form 709. Gift-splitting requires both spouses to consent and to be married at the time of the gift. The election is made annually on Form 709 and applies to all gifts made by either spouse during the year.
Real-world example: a married couple with three children and seven grandchildren (10 potential donees) can gift $380,000 per year to family members without using any lifetime exemption ($19,000 times two spouses times 10 donees). Over a 10-year period, the family has shifted $3,800,000 out of the taxable estate without using any of the $30,000,000 combined lifetime exemption. The annual exclusion gifting is one of the most powerful and underutilized estate planning techniques for families with substantial wealth and large extended family networks.
Gifts to spouses are not subject to gift tax at all under §2523, regardless of amount, as long as the recipient spouse is a US citizen. Gifts to non-citizen spouses are subject to a separate annual exclusion of $190,000 for 2026 (also indexed annually, not the standard $19,000). Gifts to political organizations under §2501(a)(5), gifts for educational expenses paid directly to the educational institution under §2503(e)(2)(A), and gifts for medical expenses paid directly to the medical provider under §2503(e)(2)(B) are also outside the gift tax regime entirely. These categories are sometimes called ‘super-annual-exclusion’ gifts because they do not count against either the annual exclusion or the lifetime exemption.
The direct-payment exclusions under §2503(e)(2) are particularly valuable for grandparents paying college tuition or medical expenses for grandchildren. A grandparent who pays a grandchild’s $80,000 annual tuition directly to the university uses no annual exclusion and no lifetime exemption. The same grandparent can also give the grandchild $19,000 in cash under the annual exclusion and pay any medical expenses directly to providers, all without using any lifetime exemption. For families with multigenerational tuition and medical obligations, this technique can shift hundreds of thousands of dollars per year out of the taxable estate.
Crummey notice planning extends the annual exclusion to irrevocable trusts. A gift to a trust does not normally qualify for the annual exclusion because the trust beneficiary does not have a present interest in the gifted property. The Crummey notice (named after the 1968 Tax Court case Crummey v. Commissioner) gives the beneficiary a 30-day window to withdraw the gift, which creates a present interest that qualifies for the annual exclusion. The beneficiary almost never actually withdraws (which would defeat the trust planning), but the right to withdraw is sufficient to convert the gift into an annual exclusion gift. Crummey-style irrevocable trusts are common for life insurance trust funding and other multi-generational gift strategies.
OBBBA extension through December 31, 2034
The One Big Beautiful Bill Act (P.L. 119-21), signed July 4, 2025, extended the elevated estate and gift tax exemption that originated in the 2017 Tax Cuts and Jobs Act for an additional nine years. The original TCJA exemption was scheduled to sunset on December 31, 2025, with the exemption dropping back to roughly $7,000,000 per person (the pre-TCJA baseline plus inflation through 2025). OBBBA replaced the December 31, 2025 sunset with a new December 31, 2034 sunset. After December 31, 2034, the exemption is scheduled to drop back to the pre-TCJA baseline plus inflation through 2034.
The exact post-2034 exemption is uncertain because it depends on future Congressional action and the inflation adjustments through 2034. If no further extension is enacted, the post-2034 exemption is estimated to be in the $7,500,000 to $8,500,000 per person range, depending on inflation. This would be roughly half the 2034 exemption (estimated at $19M to $21M per person at that time based on continued inflation adjustments). The drop, if it occurs, would create the same planning urgency that built up before the original 2025 sunset.
Treasury and IRS guidance issued during the TCJA era addressed how lifetime gifts under the high exemption interact with a future reduced exemption. Treas. Reg. §20.2010-1(c), finalized in 2019, provides anti-clawback protection: if a taxpayer makes lifetime gifts using the elevated exemption and then dies after the exemption decreases, the estate tax computation uses the higher of the exemption available at the time of the gifts or the exemption available at death. This means lifetime gifts made under the $15M exemption (or higher in later years) are protected against retroactive estate tax if the exemption later drops below the gifted amount.
The anti-clawback regulations have one important limitation: they only protect ‘taxable gifts’ that were actually completed and reported on Form 709 during the high-exemption period. Gifts that were not completed (revocable trusts that were not made irrevocable, retained beneficial interests that were not surrendered, gifts to grantor trusts where the grantor retained certain powers) do not qualify for the anti-clawback protection. The taxpayer must actually use the high exemption during the high-exemption period to get the benefit.
Planning implications for the 2034 deadline are similar to but less urgent than the 2025 deadline that existed before OBBBA. Families with estates that could exceed $15M per person should consider lifetime gifting to lock in exemption before any future drop. The 8-year runway through 2034 provides time to phase the gifting carefully without rushing into structures that may not be optimal for the family’s specific circumstances. Families with estates below $15M per person have less urgency because their estates fit comfortably under the current exemption with substantial cushion.
Future legislative action could change the 2034 deadline either way. A Congress and administration favorable to estate tax could let the exemption drop on schedule or even accelerate the drop. A Congress and administration unfavorable to estate tax could extend the high exemption further or make it permanent. Estate planning should not assume any particular outcome of future legislation but should build in flexibility to adjust as the political environment shifts. Disclaimers (qualified disclaimers under §2518 allow beneficiaries to refuse inherited property within nine months of death, redirecting it to alternative beneficiaries), formula clauses, and reciprocal disclaimer trusts can all build flexibility into the estate plan to respond to legislative changes.
Anti-clawback regulations protect lifetime gifting
Treas. Reg. §20.2010-1(c), finalized in 2019 during the original TCJA exemption period, addresses what happens to lifetime gifts made under a high exemption if the exemption later decreases. The regulation provides that the estate tax computation at death uses the higher of: (1) the exemption available at the time of any lifetime taxable gifts, or (2) the exemption available at death. This means lifetime gifts made under the high exemption are protected from retroactive estate tax if the exemption later drops.
Mechanics of the anti-clawback rule: at death, the executor computes the estate tax on the gross estate (everything the decedent owned plus prior taxable gifts) and then subtracts the applicable credit. The applicable credit is computed using the higher of the lifetime gift exemption or the date-of-death exemption. If the decedent gifted $15,000,000 in 2026 (using the full 2026 exemption) and died in 2036 when the exemption has dropped to $8,000,000 (hypothetical post-sunset amount), the executor uses the $15,000,000 amount for the credit calculation. The $15,000,000 of lifetime gifts is treated as having used the full available exemption, and no additional tax is owed on those gifts.
Real-world example showing the anti-clawback protection: a married couple makes $30,000,000 of joint lifetime gifts in 2026 (using both spouses’ $15M exemptions through portability). The couple dies in 2037 with another $5,000,000 of remaining assets and a hypothetical $8,000,000 exemption per person. Without the anti-clawback rule, the lifetime gifts could be ‘clawed back’ into the estate tax computation, producing tax on the $30,000,000 of lifetime gifts at 40 percent above the $8M exemption (roughly $8.8 million of tax). With the anti-clawback rule, the lifetime gifts are protected. The estate computation uses the $30M of historical exemption usage as the applicable credit. Only the remaining $5,000,000 of assets at death are subject to additional analysis, and they fall under the $8M remaining exemption (if any was preserved at the spousal level), producing zero estate tax.
The anti-clawback rule has limits. It applies only to gifts that were ‘taxable gifts’ in the year made, meaning gifts that were reported on Form 709 and counted against the lifetime exemption. Gifts that did not use exemption (annual exclusion gifts, gifts to spouses, direct payments for tuition or medical expenses) are not affected by the rule because they did not consume exemption in the first place. The rule also requires that the gifts be completed gifts during the high-exemption period; incomplete gifts, gifts subject to retained powers, and gifts that the donor effectively reclaimed do not get the protection.
Proposed regulations issued in 2022 (REG-118913-21) clarify edge cases involving certain gift structures that might otherwise be brought back into the estate. The proposed regs target ‘incomplete gifts’ where the donor retains beneficial enjoyment of the gifted property (gifts to grantor trusts where the grantor retained too much control, gifts subject to powers of appointment that could redirect the property back, gifts of remainder interests where the donor retained the income interest). These structures may not qualify for anti-clawback protection if the donor’s retained interest causes the property to be included in the gross estate at death. The proposed regs were not finalized as of 2026 but indicate the IRS’s enforcement direction.
Documentation is essential for anti-clawback protection. The taxpayer’s Form 709 gift tax returns from the high-exemption period are the primary record of how much exemption was used. Estate tax practitioners recommend retaining all Form 709 returns indefinitely (not just for the standard statute of limitations period) and maintaining a running schedule of cumulative lifetime exemption usage. Families with substantial lifetime gifting should keep a master estate planning file that includes all Form 709 returns, appraisals of gifted property, trust documents for any irrevocable trusts created with the gifts, and the family’s overall exemption tracking schedule. This documentation will be essential at the eventual estate administration to claim the anti-clawback protection correctly.
Spousal portability and DSUE elections
Spousal portability under §2010(c)(5)(A) allows a surviving spouse to use the deceased spouse’s unused exemption (called the DSUE, or deceased spousal unused exclusion amount). The mechanic is straightforward but requires action: the executor of the first-to-die spouse must file a Form 706 federal estate tax return and elect portability on that return, even if no estate tax is owed and even if the estate is below the filing threshold. Without the timely portability election, the deceased spouse’s unused exemption is lost and the surviving spouse is limited to her or his own exemption only.
The portability election is made on Form 706 Part 6, Section A, by checking the box electing portability. The election is irrevocable once made and the deadline is the standard Form 706 due date (9 months after death, with automatic 6-month extensions available, for a maximum effective deadline of 15 months after death). The Form 706 must report the deceased spouse’s complete estate and compute the DSUE amount, which equals the deceased spouse’s exemption minus any taxable gifts and bequests made by the deceased spouse.
Real-world example: husband dies in 2026 with $5,000,000 of assets, all passing to his wife under an unlimited marital deduction (§2056). No estate tax is owed because of the marital deduction. The executor still files Form 706 to elect portability. The DSUE amount transferred to the wife is the full $15,000,000 exemption minus zero used (no taxable gifts), equals $15,000,000. The wife now has her own $15,000,000 exemption plus the husband’s $15,000,000 DSUE, for a combined $30,000,000 of exemption to apply against her future estate and any lifetime gifts she makes.
Late portability elections were addressed by Rev. Proc. 2022-32, which extended the deadline for late portability elections from 2 years to 5 years after death for estates that were not required to file Form 706 but later wanted to claim portability. This is the most generous late-election provision in current estate tax procedure and covers most surviving spouses who failed to file a timely portability election. Families discovering missed portability elections during the 5-year window can typically still claim the DSUE by filing a late Form 706 with the proper relief request.
DSUE planning is critical for couples with one spouse holding substantially more wealth than the other. The traditional ‘AB trust’ or ‘credit shelter trust’ structure that was common before portability is now largely obsolete for families with combined estates below the combined $30M exemption threshold. The simpler approach of all-to-spouse with portability election usually produces a cleaner estate plan with fewer ongoing trust administration costs. Families with combined estates approaching or exceeding $30M may still benefit from credit shelter trust planning to capture appreciation of the deceased spouse’s portion outside the surviving spouse’s estate, but the analysis should be redone in light of the higher exemption.
DSUE does not carry forward through multiple marriages indefinitely. A surviving spouse who receives DSUE from a deceased first spouse and then remarries can only use the most recent deceased spouse’s DSUE. If the surviving spouse remarries and the new spouse also dies, the original first spouse’s DSUE is replaced by the new deceased spouse’s DSUE. This rule prevents stacking DSUE from multiple deceased spouses. Surviving spouses who plan to remarry and who have substantial DSUE from a first marriage should consider using that DSUE through lifetime gifts before the remarriage, locking in the benefit before the rule replaces it. This is a niche planning point but matters substantially for families in this specific situation.
SLAT, IDGT, and GRAT overview
Spousal Lifetime Access Trusts (SLATs) are irrevocable trusts created by one spouse for the benefit of the other spouse during the beneficiary spouse’s lifetime, with remainder interests passing to children or other descendants. The donor spouse uses lifetime exemption to fund the SLAT with appreciating assets. The beneficiary spouse has access to trust distributions for her or his needs, providing some indirect access to the gifted property without including it in either spouse’s estate. SLATs are popular for couples who want to lock in the high exemption but worry about giving up access to the gifted property entirely.
Reciprocal SLATs (each spouse creating a SLAT for the other) can double the exemption usage but face the reciprocal trust doctrine under federal common law. The IRS can collapse reciprocal SLATs if they are substantially identical, treating them as if each spouse had created a trust for her or his own benefit, which would bring the assets back into the donor’s estate. To avoid reciprocal trust doctrine issues, the two SLATs should have meaningful differences: different trustees, different beneficiary classes, different funding amounts, different distribution standards, different creation dates, and different remainder dispositions. Done carefully, reciprocal SLATs can use both spouses’ $15M exemptions and shield $30M of value outside the combined estate.
Intentionally Defective Grantor Trusts (IDGTs) are irrevocable trusts structured to be income-tax grantor trusts (the grantor pays the income tax on trust earnings) but not estate-tax includable in the grantor’s estate. The income tax burden borne by the grantor is effectively an additional gift to the trust that is not counted against the lifetime exemption (because the grantor is paying her or his own legal income tax obligation). IDGTs accelerate wealth transfer because the trust grows tax-free from the grantor’s perspective while the grantor’s own assets are depleted by the income tax payments.
IDGT sales are a common variation. The grantor sells appreciating assets to the IDGT in exchange for a promissory note bearing interest at the applicable federal rate (AFR). The sale is not a taxable transaction for income tax purposes because the trust is a grantor trust (transactions between grantor and grantor trust are disregarded for income tax). The sale is also not a gift for gift tax purposes because the trust pays fair value for the assets. The result is that future appreciation of the sold assets grows in the IDGT outside the grantor’s estate, while the grantor’s estate has the note (which grows only at the AFR) instead of the original asset.
Grantor Retained Annuity Trusts (GRATs) are short-term irrevocable trusts under §2702 where the grantor retains an annuity interest for a fixed term and the remainder passes to beneficiaries. If the assets in the GRAT grow faster than the §7520 interest rate (the IRS-published hurdle rate used to value the annuity interest), the excess growth passes to the beneficiaries gift-tax-free. GRATs are particularly valuable in low-interest-rate environments because the §7520 rate is the hurdle, and low rates make it easier for the trust assets to outperform.
Zeroed-out GRATs are the most common variation. The grantor structures the annuity payment to equal the actuarial value of the entire trust corpus plus assumed §7520 growth, so the gift to the remainder beneficiaries has zero present value (and uses zero lifetime exemption). All upside above the §7520 rate passes to the remainder beneficiaries without any exemption usage. The risk is that the grantor must survive the GRAT term for the strategy to work; if the grantor dies during the term, the GRAT assets are pulled back into the grantor’s estate. Most GRATs are structured with 2-year terms to minimize mortality risk, with the strategy ‘rolled’ annually into successive GRATs to maintain ongoing wealth transfer.
Charitable Lead Annuity Trusts (CLATs) and Charitable Lead Unitrusts (CLUTs) are similar to GRATs but with a charity as the income beneficiary instead of the grantor. The grantor makes a gift to the CLAT/CLUT, the charity receives annuity or unitrust payments for a term of years, and the remainder passes to family beneficiaries. The grantor receives a charitable deduction at funding for the present value of the charity’s interest, and the family beneficiaries receive any growth above the §7520 hurdle rate. CLATs and CLUTs combine philanthropy with wealth transfer in ways that GRATs alone cannot.
Each structure has tradeoffs that depend on the family’s specific situation. SLATs preserve indirect access through the beneficiary spouse but require careful planning to avoid reciprocal trust doctrine. IDGTs accelerate wealth transfer through the grantor’s continued income tax burden but require the grantor to have sufficient outside assets to pay the income tax. GRATs work best with volatile, high-growth assets that may outperform the §7520 rate but expose the family to mortality risk during the trust term. CLATs and CLUTs add charitable giving to the mix and produce additional income tax benefits at funding. The right combination depends on the family’s wealth level, age, family dynamics, charitable inclinations, and risk tolerance. The Reed Corporation works closely with the family’s estate planning attorney on the tax aspects of these structures, including income tax reporting for the trusts, GST allocation, and the long-term wealth transfer projections that show how the structures perform over the family’s lifetime.
Why act now despite the 8-year runway
The eight-year runway through December 31, 2034 is real but not a reason to wait. Several factors argue for completing exemption-locking strategies during the high-exemption period rather than waiting until late in the runway. The first factor is appreciation. Assets gifted now grow outside the donor’s estate for the next eight years and beyond. A $15M gift today that grows at 7 percent per year is worth $25.8M in 2034, meaning the family has shifted $10.8M of additional growth outside the estate at no exemption cost. Delaying the gift gives up that compounding outside the estate.
The second factor is legislative risk. The OBBBA extension is law, but Congress can change the law again before 2034. A future administration unfavorable to the high exemption could accelerate the sunset, reduce the exemption immediately, or impose other estate tax restrictions. Families who lock in the exemption through completed gifts during the current high-exemption period are protected by the anti-clawback regulations regardless of future legislative changes. Families who wait expose themselves to legislative risk that could materialize before they act.
The third factor is valuation. Family business interests, real estate, and other illiquid assets often qualify for valuation discounts (minority interest discounts, lack-of-marketability discounts) that reduce the gift tax value of the transferred property. A 40 percent discount on a $25M family business interest means the gift is reported at $15M for exemption purposes. Valuation discounts have been under attack legislatively for years; the IRS’s proposed §2704 regulations (withdrawn in 2017) would have substantially curtailed discount planning. Families who can lock in discounts during the current regulatory environment may protect substantial value compared to gifting after potential future restrictions.
The fourth factor is family dynamics. Estate planning conversations are easier to have when the family is together, healthy, and engaged. Waiting until the donor’s health deteriorates or family circumstances change can produce rushed decisions, family conflict, and suboptimal structures. Completing thoughtful planning during a period of family stability is generally better than waiting until urgency forces action.
Counterarguments to acting now also exist. The first is that the donor may need access to the gifted property in retirement and cannot afford to give it away entirely. SLATs partially address this by providing indirect access through the beneficiary spouse, but a single donor with no spouse or a donor whose spouse may not survive does not have this option. Selling assets to an IDGT in exchange for a promissory note also preserves some access through the note payments. Families should run cash flow projections to confirm that the post-gift estate is large enough to support the donor’s lifetime needs before completing substantial gifts.
The second counterargument is that the post-2034 exemption may not actually drop. Congress may extend the high exemption again, make it permanent, or even increase it further. Families who act aggressively in 2026 to lock in the high exemption may find that the post-2034 exemption is just as high or higher. The anti-clawback regulations protect against retroactive tax on the gifts, but the strategic effort spent on the planning would have been unnecessary. This risk is real but generally not a reason to wait, because the cost of acting (some planning fees, some loss of access to gifted property) is much smaller than the potential cost of not acting (estate tax on $15M or more of value at 40 percent).
The recommended approach for most high-net-worth families is a phased gifting strategy spread across the eight-year window. Rather than gifting the full exemption in 2026 or waiting until 2034, the family completes gifts of perhaps $2M to $5M per year over the eight-year period. This approach captures most of the appreciation outside the estate, locks in exemption in case of future legislative changes, preserves donor liquidity for ongoing needs, and allows the family to adjust the gifting plan as circumstances change. The Reed Corporation works with the family’s estate planning attorney to model these phased strategies and coordinate the tax reporting on each year’s Form 709.
Coordination with the family’s broader tax situation matters substantially. Lifetime gifts that use exemption have implications for capital gains tax basis (gifted property carries over basis, while inherited property gets stepped-up basis at death). For some assets, the better strategy is to hold until death to capture the basis step-up, even if estate tax is owed on the asset. For other assets (high-basis assets, especially in high-tax states), lifetime gifting is clearly better. The analysis is asset-by-asset and requires modeling both the estate tax and the income tax consequences of each strategy. The Reed Corporation provides the income tax analysis that complements the estate planning attorney’s gift and estate tax analysis, and the integration of those two perspectives is where the most meaningful planning improvements typically come from. A 30-minute consultation with the firm to review your current estate plan and the new 2026 numbers under OBBBA is a reasonable starting point for any family with substantial assets.
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Frequently Asked Questions
What is the 2026 estate tax exemption per person?
The 2026 estate tax exemption is $15,000,000 per person, an increase from the 2025 exemption of $13,990,000. This is the cumulative amount of taxable transfers (lifetime gifts above the annual exclusion plus transfers at death) that a US citizen or resident can make without triggering federal estate or gift tax. The exemption is unified under §2010 of the Internal Revenue Code, meaning lifetime gifts and transfers at death share a single $15M bucket per person. A married couple can shield up to $30,000,000 from federal estate and gift tax by combining both spouses’ exemptions through portability, assuming proper portability elections are made at the first spouse’s death.
The estate tax rate on transfers above the exemption is a flat 40 percent under §2001(c). This is not a graduated rate, so every dollar of taxable estate above the $15M exemption produces 40 cents of federal estate tax. A $20M estate with no prior taxable gifts owes $2M of federal estate tax (40 percent times $5M of taxable excess). A $50M estate owes $14M of federal estate tax (40 percent times $35M of taxable excess). State estate or inheritance taxes apply in many states and can add 5 to 20 percent of additional tax on top of the federal rate. Families with substantial assets in states like New York, Massachusetts, Connecticut, Oregon, and Washington should factor state estate tax into the overall planning.
The $15M exemption is per person, not per family or per household. A single individual claiming the full exemption can transfer up to $15M tax-free over their lifetime and at death. A married couple can transfer up to $30M tax-free using both spouses’ exemptions, but the mechanics depend on how the planning is structured. If all assets pass to the surviving spouse at the first death (using the unlimited marital deduction under §2056) and then to children at the second death, the surviving spouse can claim both her own exemption and the deceased spouse’s DSUE through a timely portability election on Form 706. Without the portability election, the deceased spouse’s exemption is lost.
Annual inflation adjustments will continue between 2026 and the next scheduled sunset on December 31, 2034. Based on projected Chained-CPI inflation of 2.5 to 3 percent per year, the 2027 exemption will likely be in the $15.4M range, 2028 around $15.8M, 2029 around $16.2M, and so on. By 2034, the exemption could be in the $19M to $21M per person range. Families running multi-year estate plans should model the exemption growth when projecting estate values against future thresholds. The Reed Corporation models exemption growth as part of any thorough estate planning engagement.
Beyond the regular estate exemption, the generation-skipping transfer (GST) tax exemption under §2631 also equals $15,000,000 for 2026. The GST exemption is separate from the regular estate exemption and applies to transfers that skip a generation (typically to grandchildren or more remote descendants). GST exemption must be allocated to specific transfers to provide protection. Failure to allocate GST exemption can result in GST tax at 40 percent on top of any regular estate or gift tax, producing effective tax rates over 60 percent on multigenerational transfers. GST planning is essential for families with multigenerational wealth transfer goals and requires specific attention separate from the regular estate exemption planning.
The exemption is automatically available; no election is required to claim it. Estate tax returns (Form 706) are required to be filed only when the gross estate exceeds the exemption plus any adjusted taxable gifts (so the threshold for filing is roughly $15M for an individual in 2026, lower if the decedent had made substantial lifetime taxable gifts). Many estates below the filing threshold still file Form 706 voluntarily to elect portability for the surviving spouse, which is one of the most common reasons to file when no tax is actually owed.
Gift tax returns (Form 709) are required for any year in which a taxpayer makes gifts exceeding the annual exclusion of $19,000 per donee (or makes gifts that require certain elections, such as gift-splitting between spouses or GST exemption allocation). The Form 709 tracks cumulative lifetime exemption usage and is the foundational document for the eventual estate tax calculation. Taxpayers making substantial lifetime gifts should file Form 709 every year the gifts occur and retain copies indefinitely. The cumulative exemption usage history will be needed at the eventual estate administration.
Non-resident aliens face a much smaller estate tax exemption under §2102, just $60,000 for property located in the United States. The $15M exemption applies only to US citizens and US residents (for estate tax purposes, generally domiciliaries). Non-resident alien estates are subject to US estate tax on US-situs property (US real estate, US tangible personal property, US stocks and bonds with certain exceptions) at a 40 percent rate after the $60,000 exemption. Treaty provisions can modify these rules for citizens of certain countries with US estate tax treaties (Canada, France, Germany, Ireland, Italy, Netherlands, South Africa, Switzerland, United Kingdom, and others).
The Reed Corporation provides estate tax planning and compliance services for high-net-worth clients and works closely with the client’s estate planning attorney on the integrated tax and legal planning. Our role typically focuses on the income tax aspects (basis planning, grantor trust income reporting, IDGT income tax compliance, GST allocation, gift tax return preparation) and the long-term wealth transfer modeling that shows how the estate plan performs over the family’s lifetime. The estate planning attorney handles the trust drafting, the legal structure, and the actual document execution. The integrated planning produces better outcomes than working with either professional alone. A 30- to 60-minute initial consultation typically establishes the family’s current estate position, identifies the most significant planning opportunities, and lays out a phased setup plan that the family can execute over the next several years. Most clients work with us on an ongoing basis through annual tax filings, periodic estate planning reviews, and major life events (sale of a business, marriage of a child, death of a spouse, birth of grandchildren) that trigger plan updates. The eight-year runway through 2034 provides enough time for thoughtful phased planning, but the planning should start in 2026 rather than waiting until later in the runway when other variables (the family’s age, health, business situation) may have changed.
How does the annual gift exclusion work under the 2026 estate tax exemption?
The annual gift tax exclusion under §2503(b) is $19,000 per donee for 2026, unchanged from 2025. The exclusion shields gifts of up to $19,000 per recipient per year from both gift tax and from counting against the donor’s lifetime exemption. There is no limit on the number of donees, so a taxpayer can gift $19,000 to each of dozens or hundreds of recipients in a single year without any tax consequence. Married couples can combine their exclusions through gift-splitting under §2513, effectively doubling the per-donee amount to $38,000.
The annual exclusion is calculated per donor per donee per year. A father can give each of his three children $19,000 in 2026 (total $57,000 of annual exclusion gifts) without using any lifetime exemption. The same father can also give each of his five grandchildren $19,000, his mother $19,000, his brother $19,000, and three close family friends $19,000 each, for a total of $228,000 of annual exclusion gifting in one year. None of this counts against the lifetime exemption. The numbers add up quickly for families with large extended networks.
Gift-splitting between spouses doubles the per-donee amount. A married couple electing gift-splitting on Form 709 can give $38,000 to each donee in 2026, even if all the cash actually comes from one spouse’s separate property. The election is annual and applies to all gifts made by either spouse during the year (gift-splitting is not selective; you cannot split some gifts and not others within a single year). The election requires both spouses to consent, both to be US citizens or residents, and both to be married to each other at the time of the gift. The election is made on each spouse’s Form 709 by checking the gift-splitting box and listing the spouse’s information.
Real-world example: a married couple in their 60s with three adult children, two adult children-in-law (the spouses of two of their children), and four grandchildren. The couple wants to make the most of annual exclusion gifting to shift wealth out of their estate. In 2026, the couple gives $38,000 to each of three children, two children-in-law, and four grandchildren, for a total of $342,000 of annual exclusion gifts. Over 10 years (assuming no inflation adjustment to the annual exclusion, which is conservative), the couple shifts $3.42 million out of their combined estates without using any of their $30M combined lifetime exemption. The annual exclusion is one of the most powerful tools available for systematic wealth transfer.
Annual exclusion gifts can be cash, marketable securities, real estate, family business interests, or any other property. The valuation date is the date of the completed gift. Cash and marketable securities are easy to value. Real estate and closely held business interests typically require a qualified appraisal at the time of the gift if the gift’s value approaches the annual exclusion limit per donee. Annual exclusion gifts that are reported on Form 709 (because they require gift-splitting election or other reporting) should include the appraisal documentation. Gifts well below the annual exclusion per donee can typically be made without appraisals because no Form 709 is required.
Direct payments for tuition and medical expenses under §2503(e)(2) are entirely separate from the annual exclusion and do not count against it. A grandparent who pays a grandchild’s $80,000 annual college tuition directly to the university uses no annual exclusion and no lifetime exemption. The same grandparent can also give the grandchild $19,000 in cash under the annual exclusion in the same year. Combined, the grandparent has shifted $99,000 of value to the grandchild without using any lifetime exemption. For families with multigenerational educational and medical obligations, this technique can shift hundreds of thousands of dollars per year out of the taxable estate.
Gifts to 529 plan accounts have a special election under §529(c)(2)(B) called the ‘five-year forward gift’ or ‘superfunding’ election. A donor can make a single contribution of up to five times the annual exclusion to a 529 plan ($95,000 in 2026, or $190,000 with gift-splitting for a married couple) and elect to treat the contribution as if made ratably over five years. This shifts substantial value to the 529 account immediately, captures any future appreciation outside the donor’s estate, and uses five years of annual exclusion at once. Grandparents commonly use this technique to fund 529 plans for grandchildren at substantial scale.
Crummey trust planning extends the annual exclusion to irrevocable trusts. A gift to a trust does not normally qualify for the annual exclusion because the trust beneficiary does not have a present interest in the gifted property (the beneficiary’s interest is future). The Crummey notice (from the 1968 Tax Court case Crummey v. Commissioner) gives the beneficiary a 30-day window to withdraw the gift, creating a present interest that qualifies for the annual exclusion. The beneficiary almost never actually withdraws (which would defeat the trust planning), but the right to withdraw is sufficient. Crummey-style irrevocable life insurance trusts are common for funding life insurance premiums through annual exclusion gifts, building up substantial death benefits outside the taxable estate.
The Reed Corporation tracks annual exclusion usage for client families and prepares the related Form 709 returns where required. The most common planning question is how to coordinate annual exclusion gifting with other estate transfer strategies (Crummey trusts, 529 plans, direct tuition payments, GRAT funding) to make the most of the combined annual transfer capacity. For families with substantial estates and large family networks, the annual transfer capacity can run into the high six figures per year just from annual exclusion and direct-payment techniques. Over a 20-year planning horizon, those techniques alone can shift $5M to $15M out of the taxable estate without touching the lifetime exemption. The families who consistently execute the annual exclusion strategy year after year usually end up with substantially smaller taxable estates than families who plan only at major liquidity events. The discipline of executing annual exclusion gifts each January, combined with periodic larger transfers using the lifetime exemption when appropriate, produces the best long-term outcomes for high-net-worth families. The $19,000 per donee in 2026 sounds modest, but the compounding effect over decades across multiple family members is substantial. A consultation with the firm to review the family’s current annual gifting practice and identify additional capacity is a reasonable starting point for any family with assets exceeding the lifetime exemption threshold.
Is the 2026 estate tax exemption permanent or does it sunset?
The 2026 estate tax exemption of $15,000,000 per person is scheduled to sunset on December 31, 2034 under current law. After December 31, 2034, the exemption is scheduled to drop back to roughly the pre-TCJA baseline plus inflation through 2034, which is estimated to be in the $7.5M to $8.5M per person range. The post-2034 exemption is not fully determined yet because it depends on inflation between now and 2034 and on any future Congressional action that might change the scheduled sunset.
The current sunset date of December 31, 2034 was set by the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. OBBBA extended the original Tax Cuts and Jobs Act (TCJA) sunset, which would have caused the exemption to drop on December 31, 2025. Without OBBBA, the elevated exemption would have ended at the end of 2025, and the 2026 exemption would have been approximately $7M per person. OBBBA replaced the December 31, 2025 sunset with the new December 31, 2034 sunset, providing an additional nine years of high-exemption availability for families to plan around.
The post-2034 drop, if it occurs, would create the same planning urgency that built up before the original 2025 sunset. Estate planning practice in 2024 and 2025 focused heavily on completing exemption-locking gifts before the end of 2025 to take advantage of the high exemption before it dropped. With the OBBBA extension, that urgency dissipated but did not disappear; it just moved to a later date. Families should expect renewed urgency to develop in the 2032 to 2034 timeframe as the next sunset approaches, similar to the urgency that developed in the 2023 to 2025 timeframe.
Future Congressional action could change the 2034 sunset either way. A Congress and administration favorable to maintaining the high exemption (which has been the bipartisan position of the past two decades on most estate tax matters) could extend the high exemption further, make it permanent, or even increase it. A Congress and administration unfavorable to the high exemption could accelerate the sunset to an earlier date, reduce the exemption immediately, or impose other restrictions. Neither outcome is predictable in advance. Estate planning should not assume any particular outcome of future legislation but should build in flexibility to adjust as the political environment shifts.
Anti-clawback regulations under Treas. Reg. §20.2010-1(c) protect lifetime gifts made under the high exemption from retroactive estate tax if the exemption later decreases. This means families who lock in the high exemption through completed lifetime gifts during the 2026 to 2034 window are protected even if the post-2034 exemption is lower. The anti-clawback protection is the single most important feature of the current regulatory environment for estate planning, because it allows families to act on the high exemption without worrying that future legislation will undo the benefit. The anti-clawback rule applies to completed taxable gifts; it does not apply to incomplete gifts or gifts where the donor retained substantial control.
Inflation adjustments will continue between 2026 and the 2034 sunset. The 2026 exemption of $15M will likely grow to roughly $19M to $21M per person by 2034 based on projected Chained-CPI inflation of 2.5 to 3 percent per year. Families running long-term estate plans should model these increases when projecting their estates against future thresholds. A family currently at $20M of combined estate value may be comfortably under the combined exemption by 2034 if the exemption grows as projected, even without any additional planning.
The pre-TCJA exemption baseline (before the 2017 TCJA increase) was $5.49M per person in 2017, which would have grown to roughly $7.5M to $8.5M per person by 2034 based on standard inflation adjustments. If the post-2034 sunset occurs as currently scheduled, this is the exemption level the country would return to. Whether that level actually applies in 2035 depends on Congressional action between now and then. Estate planners should plan for the scheduled sunset while recognizing that the actual outcome may differ.
Strategic implications of the 2034 sunset depend heavily on the family’s specific situation. Families with estates well below $15M per person ($30M per couple) have substantial cushion under the current exemption and limited need for urgent planning. Families with estates substantially above $30M combined have significant exposure under both the current exemption and any future reduced exemption, and they benefit from aggressive lifetime gifting to lock in the high exemption while available. Families in the middle (estates of $15M to $30M per couple) face the most complex tradeoff: gifting now locks in exemption against future legislative risk, but waiting allows for inflation increases to expand the exemption.
The Reed Corporation models the 2034 sunset and its alternative scenarios for client families during estate planning reviews. The base case assumes the scheduled sunset occurs and the exemption drops to roughly $8M per person in 2035. The alternative case assumes Congress extends the high exemption further. The third scenario assumes Congress accelerates the sunset or reduces the exemption before 2034. The models show how each scenario plays out for the family’s specific assets and family composition. The conclusion for most high-net-worth families is that some level of lifetime gifting in the 2026 to 2034 window makes sense, with the amount calibrated to the family’s risk tolerance and ongoing income needs. The recommended approach for most clients is phased gifting spread across the eight-year window rather than aggressive immediate gifting or extended waiting. A consultation to model the family’s specific situation against these scenarios is the appropriate starting point for any family with substantial estate exposure. The 2034 deadline provides time for thoughtful planning but should not lead to indefinite procrastination. Families who started gifting strategies in 2024 or 2025 ahead of the original sunset and who have anti-clawback protection on those gifts should continue executing on the original plan even though the urgency has shifted. Families who deferred starting until after the OBBBA extension should begin planning conversations now rather than waiting until 2032 or 2033, when other variables (health, family circumstances, business situations) may have changed in ways that complicate the planning. Time is the single most valuable resource in estate planning, and an eight-year runway sounds like a long time but passes quickly when the planning involves multiple advisors, family meetings, and document drafting.
How can a married couple use both spouses’ 2026 estate tax exemptions?
A married couple can use both spouses’ 2026 estate tax exemptions to shield up to $30,000,000 from federal estate and gift tax, but the mechanics depend on the specific planning structure. The two primary mechanisms are spousal portability under §2010(c)(5)(A) and credit shelter trust planning (also called bypass trust planning) at the first spouse’s death. Each approach has tradeoffs. For most couples with combined estates below $30M, portability is the simpler and more flexible option.
Portability mechanics: at the first spouse’s death, the executor files Form 706 and elects portability of the deceased spouse’s unused exemption (DSUE) to the surviving spouse. The DSUE equals the deceased spouse’s exemption minus any taxable gifts made during life and any bequests passing outside the marital deduction at death. The DSUE transfers to the surviving spouse, who then has her own exemption plus the deceased spouse’s DSUE available for future lifetime gifts and the eventual estate tax at the surviving spouse’s death.
Portability example: husband dies in 2026 with $4M of assets, all passing to his wife under the unlimited marital deduction. No estate tax is owed because of the marital deduction. The executor files Form 706 (even though no tax is owed and the estate is below the filing threshold) and elects portability. The husband’s DSUE is the full $15M (he made no taxable gifts and made no non-marital bequests). The wife now has her own $15M exemption plus the husband’s $15M DSUE, for a combined $30M available. When the wife dies in 2036 with $25M of total assets, her estate uses $15M of her own exemption plus $10M of DSUE, owing zero federal estate tax.
Credit shelter trust planning is the alternative approach that was standard before portability became permanent in 2012. At the first spouse’s death, an amount equal to the deceased spouse’s exemption ($15M in 2026) passes into a credit shelter trust for the benefit of the surviving spouse and/or children. The trust assets grow outside the surviving spouse’s estate for the rest of her life. At the surviving spouse’s death, the trust assets pass to the children free of estate tax. The remaining $15M of the surviving spouse’s own exemption is available to shield her own assets at the second death. Combined, the family uses $15M of credit shelter trust plus $15M of surviving spouse exemption to shield $30M total.
Credit shelter trust versus portability comparison: portability is simpler administratively (no separate trust to administer, no separate trust tax returns to file for the credit shelter portion), preserves the basis step-up on the deceased spouse’s assets at the surviving spouse’s eventual death (assets in a credit shelter trust do not get a second step-up at the surviving spouse’s death because they are not in her estate), and provides more flexibility for the surviving spouse’s planning needs. Credit shelter trust planning captures all appreciation of the deceased spouse’s portion outside the surviving spouse’s estate (which can be valuable if substantial appreciation is expected), protects assets from the surviving spouse’s creditors and from a possible remarriage, and locks in the deceased spouse’s exemption against any future legislative reduction of the exemption.
For most couples with combined estates below $30M, portability is recommended because the combined estate fits comfortably under the combined exemption and the basis step-up benefits of portability typically outweigh the appreciation-capture benefits of credit shelter planning. For couples with combined estates approaching or exceeding $30M, credit shelter planning may make sense, particularly if the assets are expected to appreciate substantially between the first and second deaths. The analysis is fact-specific and depends on the family’s specific assets, projected appreciation, and the surviving spouse’s anticipated lifespan.
The portability election requires a timely Form 706. The standard due date is 9 months after death, with automatic 6-month extensions available (Form 4768), for a maximum effective deadline of 15 months after death. Late portability elections are addressed by Rev. Proc. 2022-32, which extended the deadline for late portability elections from 2 years to 5 years after death for estates that were not otherwise required to file Form 706. Families who missed the original 15-month deadline can typically still claim portability within 5 years of death by filing a late Form 706 with the proper relief request under Rev. Proc. 2022-32. The Reed Corporation has handled many late portability elections under this procedure and the process is straightforward when within the 5-year window.
DSUE limitations include the rule that a surviving spouse can only use DSUE from the most recent deceased spouse. If the surviving spouse remarries and the new spouse also dies, the original first spouse’s DSUE is replaced by the new spouse’s DSUE. This rule prevents stacking DSUE from multiple deceased spouses. Surviving spouses planning to remarry and who have substantial DSUE from a first deceased spouse should consider using that DSUE through lifetime gifts before the remarriage, locking in the benefit before the rule replaces it. This is a niche planning consideration but matters substantially for families in this specific situation.
Lifetime gifting between spouses (where one spouse gives appreciating assets to the other to better balance the estates between them) can also help ensure both spouses’ exemptions are usable. If one spouse holds most of the family wealth and the other spouse has minimal assets, the wealthy spouse’s estate may exceed the exemption while the other spouse’s estate goes unused. Lifetime gifts to equalize the estates (using the unlimited marital deduction under §2523) can shift assets to the lower-wealth spouse, ensuring both spouses’ exemptions get fully used. Estate equalization is one of the standard tools for high-net-worth married couples and should be considered as part of any thorough estate plan. The Reed Corporation works with the family’s estate planning attorney on the integrated tax and legal planning for spousal exemption maximization. The estate planning attorney handles the trust drafting and the legal structure, and our role focuses on the tax modeling, the income tax implications of different structures (basis step-up versus appreciation capture, grantor trust income reporting), and the ongoing compliance for trusts and gift tax returns. The integrated planning produces better outcomes than working with either professional in isolation, and most clients work with us on an ongoing basis through annual filings and periodic plan reviews.
What estate planning strategies make sense with the 2026 estate tax exemption?
The estate planning strategies that make sense in 2026 depend on the family’s estate size, age, family composition, and risk tolerance about future legislative changes. For families with combined estates above $30M, lifetime gifting strategies using exemption-using trusts (SLATs, IDGTs, GRATs) generally make sense to shift appreciation outside the taxable estate. For families with estates below $30M, simpler approaches focused on annual exclusion gifting, direct tuition and medical payments, and proper portability planning at the first death are typically sufficient. For families in between, a calibrated approach matching the level of complexity to the level of exposure is appropriate.
Spousal Lifetime Access Trusts (SLATs) are the most popular structure for couples who want to lock in the high exemption but maintain some indirect access through the beneficiary spouse. The donor spouse uses lifetime exemption to fund an irrevocable trust for the beneficiary spouse during the beneficiary spouse’s lifetime, with remainder interests passing to children or other descendants. The donor spouse gives up direct access to the gifted property but retains indirect access through the beneficiary spouse’s distributions. SLATs are particularly attractive when the couple is concerned about giving up access entirely but wants to take advantage of the high exemption.
Reciprocal SLATs (each spouse creating a SLAT for the other) can use both spouses’ exemptions but face the reciprocal trust doctrine. The IRS can collapse reciprocal SLATs if they are substantially identical, treating them as if each spouse had created a self-settled trust, which would bring the assets back into each donor’s estate. To avoid this risk, the two SLATs must have meaningful differences: different trustees, different beneficiary classes, different funding amounts, different distribution standards, different creation dates (separated by months or years), different remainder dispositions, and different governing law if possible. Done carefully, reciprocal SLATs can use up to $30M of combined exemption.
Intentionally Defective Grantor Trusts (IDGTs) are irrevocable trusts that are income-tax grantor trusts (the grantor pays the income tax) but not estate-tax includable in the grantor’s estate. The income tax burden borne by the grantor is effectively an additional gift to the trust that does not count against the lifetime exemption. IDGTs accelerate wealth transfer because the trust grows tax-free from the grantor’s perspective while the grantor’s own assets are depleted by the income tax payments. IDGTs are particularly powerful when funded with high-income assets (closely held business interests, rental real estate, dividend-paying stocks) because the income tax burden is substantial.
IDGT sales are a common variation that magnifies the wealth transfer effect. The grantor sells appreciating assets to the IDGT in exchange for a promissory note bearing interest at the applicable federal rate (AFR). The sale is not a taxable event for income tax purposes (transactions between grantor and grantor trust are disregarded under Rev. Rul. 85-13) and not a gift for gift tax purposes (the trust pays fair value). Future appreciation of the sold assets grows in the IDGT outside the grantor’s estate, while the grantor’s estate has only the note (which grows at the AFR, not at the asset’s actual rate). IDGT sales are particularly powerful for closely held business interests where the AFR is much lower than the business’s expected return.
Grantor Retained Annuity Trusts (GRATs) under §2702 are short-term trusts where the grantor retains an annuity for a fixed term and the remainder passes to beneficiaries. If the trust assets grow faster than the §7520 interest rate, the excess passes to beneficiaries gift-tax-free. Zeroed-out GRATs are structured so the annuity equals the actuarial value of the trust plus assumed §7520 growth, producing a gift with zero present value (and zero exemption usage). GRATs are most powerful with volatile, high-growth assets that may dramatically outperform the §7520 rate.
Charitable Lead Annuity Trusts (CLATs) and Charitable Lead Unitrusts (CLUTs) combine charitable giving with wealth transfer. The grantor funds the CLAT/CLUT, the charity receives annuity or unitrust payments for a term of years, and the remainder passes to family beneficiaries. The grantor receives a charitable income tax deduction at funding for the present value of the charity’s interest, and the family beneficiaries receive any growth above the §7520 hurdle rate. CLATs and CLUTs are particularly attractive for families who already plan substantial charitable giving and want to combine that giving with wealth transfer to children.
Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs) can be used to consolidate family assets into a single entity, with valuation discounts (minority interest discounts, lack-of-marketability discounts) reducing the gift tax value of transferred interests. A father can transfer LLC interests to children at a 30 to 40 percent valuation discount, meaning a $10M LLC interest is reported as a gift of $6M to $7M. The discount mechanics depend on the LLC’s structure (active management requirements, transfer restrictions, voting rights) and are scrutinized by the IRS, but properly structured FLPs and LLCs remain effective wealth transfer vehicles.
529 plan superfunding under §529(c)(2)(B) allows a donor to make a single contribution of up to five times the annual exclusion to a 529 plan ($95,000 in 2026, or $190,000 with gift-splitting for a married couple) and elect to treat the contribution as if made ratably over five years. Grandparents commonly use this technique to fund 529 plans for grandchildren at substantial scale, capturing future appreciation in the 529 outside the grantor’s estate. The 529 funding is also an income-tax-favored vehicle for education savings, providing tax-free growth on the contributions and tax-free distributions for qualified education expenses.
Irrevocable Life Insurance Trusts (ILITs) own life insurance policies outside the grantor’s estate. The grantor funds the ILIT with annual exclusion gifts (using Crummey notices to qualify the gifts for the annual exclusion), and the ILIT uses the gifts to pay premiums on a life insurance policy. At the grantor’s death, the death benefit pays to the ILIT and ultimately to the family beneficiaries, free of estate tax. ILITs are particularly powerful for families with substantial estate tax exposure who want to provide liquidity at death to pay the estate tax without diluting other estate assets. A $10M life insurance policy held in an ILIT can be funded for $20,000 to $50,000 per year of annual exclusion gifts, producing $10M of estate-tax-free death benefit that the family can use to pay taxes or replace estate assets sold to pay taxes.
The Reed Corporation works closely with the family’s estate planning attorney on the integrated tax and legal planning for these strategies. Our role typically includes the tax modeling that shows how each structure performs over the family’s lifetime, the income tax compliance for grantor trusts and IDGTs (which require careful coordination because the income flows back to the grantor’s personal return), the gift tax return preparation for the original funding, the GST exemption allocation strategy, and the ongoing trust tax compliance for any non-grantor trust components. The integrated planning produces better outcomes than working with either professional in isolation. For families starting the planning process now, the typical first engagement is a 60-minute consultation to review the family’s current estate position, identify the most significant planning opportunities, and lay out a phased setup plan that the family can execute over the next several years. Most clients then work with us on an ongoing basis through annual tax filings, periodic plan reviews, and major life events. The eight-year runway through 2034 provides enough time for thoughtful planning, but the planning should start in 2026 rather than waiting until 2033 when other variables may have changed. The strategies described above are well-established and have been used by high-net-worth families for decades. They are not aggressive tax-shelter products that may not survive IRS scrutiny; they are mainstream estate planning tools that work within the existing tax code. The execution requires careful coordination among the family, the estate planning attorney, the tax advisor, and any other involved professionals, and the ongoing compliance over multiple years is just as important as the initial structure design.