The federal estate tax exemption is scheduled to drop from $13.61 million to approximately $7 million per person on January 1, 2026. For families with taxable estates, this is the most significant planning event in a generation. Here is what you need to know and what to do before the deadline.
The One Big Beautiful Bill Act (OBBBA) of 2026 doubled the federal estate tax exemption to $13.61 million per person (2024). Unless Congress acts, this provision was extended under the OBBBA through 2033, and the exemption reverts to approximately $7 million per person (adjusted for inflation). For married couples, the combined exemption drops from $27.22 million to approximately $14 million. Families with estates above $7 million per person need to act before the deadline.
The federal estate tax is a 40% tax on the value of your estate above the exemption threshold at your death. Under current law, the exemption is $13.61 million per person — meaning a married couple can pass $27.22 million to their heirs without any federal estate tax.
On January 1, 2026, unless Congress extends the current law, the exemption drops to approximately $7 million per person — a reduction of nearly $6.61 million per person.
Who Is Affected: Families with estates between $7 million and $13.61 million per person are in the most urgent situation. Under current law, they owe no estate tax. Under 2026 law, they could owe up to 40% on the amount above $7 million.
Example: A married couple with a $20 million estate. Under current law: no estate tax (below the $27.22 million combined exemption). Under 2026 law: $20 million minus $14 million combined exemption = $6 million taxable. At 40%: $2.4 million in estate taxes.
1. Use Your Exemption Now: Make gifts up to your current exemption before December 31, 2025. The IRS has confirmed that gifts made under the current exemption will not be 'clawed back' even if the exemption decreases in 2026. This is the most straightforward strategy.
2. Fund a Spousal Lifetime Access Trust (SLAT): A SLAT allows you to make a gift to an irrevocable trust for your spouse's benefit, using your current exemption. Your spouse can access the trust assets during their lifetime, and the assets pass to your children at your spouse's death — outside both estates.
3. Fund a Dynasty Trust: Contribute assets to a dynasty trust using your current GST tax exemption. The assets grow inside the trust for multiple generations without triggering estate or GST taxes.
4. Fund a GRAT: Transfer appreciated assets to a GRAT, using the current low Section 7520 rate to maximize the amount that passes to heirs gift-tax-free.
5. Establish a Private Foundation: Contribute assets to a private foundation, removing them from the taxable estate while generating a charitable deduction and maintaining family control over the assets.
The planning gap is urgency. Many families know the exemption is decreasing but have not acted because they are waiting for certainty about whether Congress will extend the current law. The risk of waiting is significant — if Congress does not act, families who waited will have missed the most important planning window in a generation.
Legislative uncertainty — Congress may extend the current exemption, making some strategies unnecessary. But the risk of not acting is greater than the risk of acting.
Clawback risk — the IRS has confirmed that gifts made under the current exemption will not be clawed back, but this position could change.
SLAT reciprocal trust doctrine — if spouses create reciprocal SLATs, the IRS may treat them as a single trust and include the assets in both estates.
Liquidity risk — gifting assets to reduce the taxable estate may leave the estate without sufficient liquidity to pay remaining estate taxes.
The 2026 estate tax exemption sunset is the defining planning event for the Mini Family Office. Every component of the strategy — the revocable living trust, the SLAT or dynasty trust, the private foundation, the family limited partnership — should be reviewed and potentially funded before December 31, 2025.
A private foundation is one of the most effective tools for using the current exemption before any future legislative changes. By contributing assets to a foundation, families remove those assets from the taxable estate, generate a charitable deduction, and maintain family control over the assets through the foundation's governance structure.
Spousal Lifetime Access Trust (SLAT) — uses current exemption while maintaining spousal access
Dynasty Trust — multi-generational wealth transfer at current exemption levels
Grantor Retained Annuity Trust (GRAT) — transfers appreciation to heirs with minimal gift tax
Family Limited Partnership — valuation discounts reduce the taxable estate
Private Foundation — removes assets from the estate with charitable deduction
Irrevocable Life Insurance Trust (ILIT) — provides estate liquidity outside the taxable estate
Access our full research library for case law, IRS codes, and government sources supporting this topic.
View ResearchThe 2026 estate tax exemption sunset is the most important planning deadline for families with significant assets. Our pro bono assessment evaluates your estate's exposure and identifies the strategies most appropriate for your situation — before the deadline.
Calculate your estate's exposure under 2026 law — if your estate exceeds $7 million per person, you need to act before December 31, 2025.
Do not wait for certainty about Congressional action — the risk of not acting is greater than the risk of implementing strategies that may become unnecessary.
Review your existing estate plan with your attorney — many plans drafted under the current exemption levels need to be updated to address the potential decrease.
Consider a SLAT if you want to use your exemption while maintaining access to the assets through your spouse — it is one of the most flexible strategies available.
Every client with a taxable estate should be contacted immediately about the 2026 sunset — this is the most important planning event in a generation and the window is closing.
Model the estate tax exposure under both current law and 2026 law for every client — the difference is often dramatic and creates immediate urgency.
The SLAT is the most popular strategy for married couples — but be careful of the reciprocal trust doctrine and make sure the two SLATs are meaningfully different.
Coordinate with the client's CPA on the income tax implications of gifting — some assets are better gifted than others depending on the basis and the expected appreciation.
Estate Planning Hotline — c/o Estate Law Training Center / Law & Tax Foundation
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