From Kiplinger · · 3m
Permanent Tax Laws Don't Exist
Why 'permanent' estate tax laws are a myth and what your legacy plan needs now.
In brief
Why 'permanent' estate tax laws are a myth and what your legacy plan needs now. The 2026 federal estate tax exemption of $15 million per person, set by the OBBBA, means most families no longer need to urgently plan for estate taxes, but existing trusts may not function correctly under the new threshold. Originally…
The most dangerous word in estate planning
The most dangerous word in American estate planning is 'permanent' because Congress has chosen not to include a scheduled expiration in the statute.
OBBBA sets new tax exemption
On July 4, 2025, President Donald Trump signed the OBBBA into effect, setting the estate, gift and generation-skipping transfer tax exemption at $15 million per individual for 2026.
Exemption increases with inflation
The OBBBA provides for inflation adjustments beginning in 2027 using 2025 as the base year, with the top federal rate remaining at 40%.
2026 gift exclusion
The 2026 annual gift exclusion for 2026 is $19,000, meaning most families no longer need urgent estate tax planning.
Why 'permanent' is misleading
The historical record shows the federal estate tax exemption has risen from $675,000 in 2001 to $3.5 million in 2009, with regular revisions by Congress.
Trusts may not function correctly
Many trusts drafted during the preceding decade contain formula clauses that behave differently at $15 million than at $5 million or $7 million thresholds.
Appreciated assets need reevaluation
Under the new exemption, retaining appreciated assets in the estate captures the basis step-up permitted at death, which can eliminate embedded capital gains.
State estate tax thresholds vary
Oregon begins taxation at $1 million, Massachusetts at $2 million, Washington at approximately $3 million, and New York at $7.35 million with a distinctive cliff at 105% of exemption.
State tax landscapes change quickly
State thresholds change more frequently than federal, and several states index their exemptions annually, meaning what was safe last year may not be safe this year.
Trust strategies need rethinking
Now, a trust reaches the top 37% federal income tax bracket at $16,000 of undistributed income in 2:026, a threshold a single individual does not encounter until $640,600 of taxable income.
Estate plan review requires coordination
The review typically begins with the attorney reading the formula clauses in the family's presence and ends with the accountant and investment adviser at the same table working from the same inventory.
What changed is the urgency
The mechanics of estate planning remain the same, but the immediacy of the pressure to act has changed, meaning families should focus on building plans that survive future rule changes.
Estate planning is about survival
Estate planning is not the practice of racing deadlines but building a plan that survives whatever the rules become next.
The key point
The 2026 federal estate tax exemption of $15 million per person, set by the OBBBA, means most families no longer need to urgently plan for estate taxes, but existing trusts may not function correctly under the new threshold.
