The IRS adjusts the estate tax exemption each year to account for inflation. With 2025 coming to a close, they have released the 2026 federal estate tax exclusion, and it is good news for high-net-worth individuals. Let’s look at the details.
Understanding the Federal Estate Tax Exclusion
The federal estate tax exclusion is the amount you may transfer at death before federal estate tax applies. If your estate value stays below the exclusion, no federal estate tax is owed.
Only the portion above the threshold is taxed, and the rate can reach 40 percent. This tax is completely separate from income tax and applies only to large estates.
The purpose of the exclusion is to prevent ordinary estates from being taxed. However, appreciating assets, such as real estate, investment portfolios, and business interests, can push a high-value estate over the threshold over time.
This is why monitoring exclusion levels is important, even if you are currently under the limit.
Why the Exclusion Changes Every Year
Each year, the IRS uses a cost-of-living formula to adjust the exclusion. These inflation-based adjustments help prevent rising asset values from creating unexpected tax exposure.
Some years bring modest increases, while years with higher inflation result in more substantial jumps. The annual adjustment is automatic unless Congress changes the law, which makes it important to stay updated as new figures are released.
2025 Parameters
The 2025 federal estate tax exclusion is $13.99 million per person. Married couples may use both exemptions with proper planning and protect nearly $28 million.
Most estates fall well below this level, so the federal estate tax is rarely owed. However, individuals and families with significant assets should continue to pay attention because estate values can grow quickly, especially with long-term investments or business ownership.
The 2026 Exclusion Will Be $15 Million
In 2026, the exclusion will increase to $15 million per person. This is the highest exemption ever and creates meaningful planning advantages.
A married couple may be able to protect up to $30 million from federal estate tax with proper documentation and elections. This increase comes from inflation indexing rather than new legislation.
Even though the number is rising, future changes are always possible. Tax laws can shift, so locking in favorable rules during a period of high exemptions is often a smart strategy.
Who Should Pay Attention?
Even though most people will never reach the federal threshold, some individuals should take this increase seriously. You should review your estate plan if you:
- Own a business or professional practice
- Hold appreciating real estate
- Maintain a large investment portfolio
- Plan to leave wealth to multiple generations
- Are near or above the current exclusion
Even if you are below the threshold now, future growth could create exposure. Planning early gives you more options to protect wealth.
Lifetime Gifts and Planning Flexibility
The lifetime gift tax exclusion is unified with the estate tax exclusion. This means any taxable gifts you make during life count against your estate tax exemption.
However, the annual gift tax exclusion allows you to give a certain amount to each recipient every year without using any of your lifetime exemption. The annual exclusion is $19,000 per recipient in 2025, and that level will be retained in 2026.
Strategic gifting can transfer assets to your beneficiaries while reducing the size of your taxable estate.
Connecticut Estate Tax Remains a Factor
Connecticut is one of 12 states with a separate state-level estate tax. The state exemption matches the federal basic exclusion amount, so it will also rise to $15 million in 2026.
The state applies a flat 12 percent tax to amounts above the exemption. In addition, Connecticut does not allow portability of the state exemption between spouses.
If one spouse does not use their exemption, it is lost. As a result, couples must plan carefully to avoid unnecessary state-level taxes.
We Are Here to Help!
To schedule a consultation at our Westport, CT estate planning office, call us at 860-548-1000. You can use the same number to request an appointment at our Glastonbury location, and you can use our contact form to send us a message.
If you would like to learn more before taking that step, join us at a complimentary seminar.
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