When a new year arrives, the government will update some significant monetary thresholds, and some of them impact estate planning and elder law matters. One of them is the amount that can be transferred before your estate is taxed.
With this in mind, the 2026 estate tax exclusion has been announced by the Internal Revenue Service. Let’s look at the details, but here’s a hint: It’s good news for high-net-worth individuals.
2026 Estate Tax Exclusion
The Tax Cuts and Jobs Act, which was passed at the end of 2017, essentially doubled the exclusion that existed at that time. As a result of that measure, the exclusion in 2018 was $11.18 million.
That level has been retained since then with ongoing adjustments to account for inflation. Throughout 2025, the exclusion is $13.99 million. In 2026, it will go up to an even $15 million.
Spousal Considerations
If you are married, there are a couple of rules that are very relevant if you have estate tax concerns. First, there is an unlimited marital deduction. This can be used to transfer any amount of property to your spouse free of taxation.
There is one caveat to the above. The unlimited marital deduction is only available to American citizens. So, if you are married to someone who is not a citizen of the United States, the deduction will not apply.
Secondly, since 2011, the estate tax exclusion has been portable. In this context, “portability” means that a surviving spouse can use the exclusion that was earmarked for their deceased spouse.
Lifetime Gift Giving
Can you just give gifts while you are living to avoid the estate tax? This is a good question, and it was the way to go back in 1916 when the estate tax was first established. At that time, there was no gift tax, so you could give your loved ones their inheritances in advance to avoid taxation.
That changed in 1924 when the gift tax was enacted. It was repealed a couple of years later, but it was reenacted in 1932. We have had a gift tax since then, and during the 1970s, the gift tax was unified with the estate tax under the tax code.
Because of this unification, the $15 million exclusion is a unified exclusion. It applies to large lifetime gifts along with your estate, so you reduce the exclusion that can be applied to your estate by giving significant lifetime gifts tax-free.
Additional Gift Tax Exclusions
The above is the bad news, but there is some good news as well. There is an additional annual gift tax exclusion. You can give as much as $19,000 to an unlimited number of recipients each year, free of taxation, without using any of your unified exclusion.
This may not sound like a lot of money to someone with a taxable estate, but it can add up over time. A married couple can combine their respective exclusions to transfer $38,000 each year tax-free.
With this in mind, let’s say that you have three married children. You could potentially give $38,000 every year to each child and each spouse. That equates to $228,000 annually transferred free of taxation as you reduce the value of your taxable estate by that amount.
On top of this annual exclusion, there is an educational exemption. If you want to pay school tuition for someone, there is no transfer tax to pay. This is a tuition-only exemption, but you could use your annual exclusion to provide additional support.
Finally, there is a medical exemption as well. You can pay health care bills for others tax-free, including health insurance premiums.
We Are Here to Help!
Even if taxes are not a concern, our doors are open if you would like to put a plan in place. When you work with us, we will learn about your situation and your objectives and make the appropriate recommendations.
Ultimately, you will emerge with a custom-crafted plan that ideally suits your needs. To get started, call our Petaluma, CA estate planning office at 707-769-9975 or send us a message through our contact page.
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