When a new year rolls around, the government updates various parameters to account for inflation. From an inheritance planning perspective, these annual adjustments can have a meaningful impact, and the tax thresholds are especially relevant.
With this in mind, many people are asking about the federal estate tax exemption for 2026. It has been established, and the increase will provide additional planning flexibility, particularly for high-net-worth individuals.
2026 Federal Estate Tax Exemption
In 2026, the exemption will rise from $13.99 million to $15 million per person. A married couple would therefore have a combined exemption of $30 million with proper planning.
Since 2011, the estate tax exclusion has been portable between spouses. But what does “portability” mean in practice?
Let’s say that you predecease your spouse without using any of your exclusion. Your spouse can elect portability, allowing them to preserve and use your unused exclusion in addition to their own.
On the subject of spouses, there is also an unlimited marital deduction. There is no limit to the amount of property you can transfer to your spouse tax-free, provided your spouse is a U.S. citizen.
Gift Tax
When you hear about the estate tax, you might naturally consider lifetime gifting as a way to reduce future tax exposure. However, the federal gift tax has been in place since 1932 and was unified with the estate tax during the 1970s.
As a result of this unification, the multimillion-dollar exclusion is a single, unified exclusion. It applies to both large lifetime gifts and the assets transferred after your passing.
We use the qualifier “large” gifts because there is an annual gift tax exclusion. This exclusion sits apart from this unified exemption and allows you to give a certain amount to any number of individuals each year without incurring gift tax or using your lifetime exemption.
In 2026, the annual gift tax exclusion remains $19,000 per recipient, the same amount as in 2025.
You may also pay qualified education expenses, such as tuition, without triggering any transfer tax liability. This tuition-only exclusion does not extend to living expenses, books, or fees, and the payment must be made directly to the educational institution.
That said, you still have the $19,000 annual exclusion available. This means you can combine strategies, such as paying tuition directly while also making annual exclusion gifts to help support a student’s other needs.
A married couple can give as much as $38,000 per recipient each year, allowing grandparents and parents to meaningfully support a child or grandchild’s education over time.
State-Level Estate Taxes
There are 12 states that impose a state-level estate tax. In most of them, the exemption amounts are significantly lower than the federal exemption. As a result, someone could face state estate tax liability even when no federal estate tax is owed.
We practice in the great state of California, and California does not impose a state estate tax. That is good news. However, some Californians may still have state-level estate tax exposure.
How is this possible? If you own property in a state that has an estate tax, that state may tax the transfer of the property if its value exceeds the applicable exemption.
For example, our neighbors in Oregon impose a state estate tax with a $1 million exemption. If you own Oregon property valued above that amount, the Oregon estate tax could apply.
Inheritance Taxes
An estate tax and an inheritance tax are two distinct forms of taxation. As discussed above, an estate tax is assessed on the estate before assets are distributed. An inheritance tax, by contrast, is assessed on the recipient of the inheritance.
There is no federal inheritance tax, and only five states impose one: New Jersey, Pennsylvania, Nebraska, Kentucky, and Maryland.
Once again, a Californian could still be affected. If you inherit property located in one of these states, an inheritance tax may apply. Fortunately, close family members are often fully or partially exempt, depending on the state.
Estate Planning Is for Everyone
Many people assume estate planning is only necessary if estate taxes are a concern. In reality, professional guidance is invaluable regardless of wealth level.
Estate planning ensures your wishes are honored, your loved ones are protected, and your legacy is passed on efficiently. The right plan depends on your goals, family dynamics, and assets.
When you work with us to create a customized estate plan, you gain peace of mind knowing that your legacy is structured with care and intention.
Take Action Today!
Our doors are open if you are ready to put a plan in place. Call us at 408-356-9200 to schedule a consultation at our Campbell, California office, or use our contact form to send us a message.
