What Is the Federal Estate Tax Exemption in 2026?

The federal estate tax exemption for 2026 is $15 million for an individual or $30 million for a married couple. Estates valued below this threshold do not owe federal estate tax. Estates exceeding this amount are taxed at rates up to 40% on the portion above the exemption.

This exemption was made permanent by the One Big Beautiful Bill Act (also known as OBBBA), which President Trump signed into law on July 4, 2025. Before this legislation, the exemption was scheduled to drop to approximately $7 million per person in 2026 under the sunset provisions of the 2017 Tax Cuts and Jobs Act.

2026 Federal Estate and Gift Tax Summary

How Does the Federal Estate Tax Exemption Work?

The federal estate tax applies only when the total value of an estate exceeds the exemption amount. If your estate is valued at less than $15 million as an individual (or $30 million as a married couple), your heirs will not owe federal estate tax.

Your estate value is determined by the fair market value of your assets at the time of death. This includes real estate, bank accounts, investment accounts, retirement accounts, life insurance proceeds (if you own the policy), business interests, and personal property.

Certain deductions can reduce your taxable estate, including debts, funeral expenses, charitable gifts, and amounts passing to a surviving spouse (under the unlimited marital deduction for U.S. citizen spouses).

Example: How Federal Estate Tax Is Calculated

Consider a single individual who passes away in 2026 with a total estate valued at $18 million. The federal estate tax calculation would work as follows:

In this example, the estate would owe approximately $1.2 million in federal estate tax on the $3 million exceeding the exemption. This illustrates why high-net-worth individuals benefit from advanced estate planning strategies to reduce their taxable estate.

What Is the Gift Tax and How Does It Work?

Gift taxes are federal taxes on transfers of money or property to another person when you receive nothing (or less than fair market value) in return. However, several exclusions protect most gifts from taxation.

Annual Gift Tax Exclusion (2026)

The annual gift tax exclusion for 2026 is $19,000 per recipient. This means you can give up to $19,000 to any number of people during the year without filing a gift tax return or using any of your lifetime exemption. Married couples can combine their exclusions to give up to $38,000 per recipient using a strategy called gift splitting.

For example, if you have three adult children, you and your spouse could give each child $38,000 in 2026 (for a total of $114,000) without any gift tax consequences. These annual exclusion gifts do not reduce your lifetime estate tax exemption.

Lifetime Gift Tax Exemption

The lifetime gift tax exemption is unified with the estate tax exemption. In 2026, this combined exemption is $15 million per individual. Gifts exceeding the annual exclusion amount reduce your lifetime exemption on a dollar-for-dollar basis.

For instance, if you give your daughter $519,000 in 2026, the first $19,000 is covered by the annual exclusion. The remaining $500,000 reduces your lifetime exemption from $15 million to $14.5 million. You would need to file IRS Form 709 (Gift Tax Return) to report this gift, though no tax would be due.

Gifts That Are Not Subject to Gift Tax

Certain transfers are not considered taxable gifts regardless of amount:

• Tuition payments made directly to educational institutions (not to the student)
• Medical expenses paid directly to healthcare providers or insurers
• Gifts to a U.S. citizen spouse (unlimited marital deduction)
• Gifts to qualified charities
• Gifts to political organizations

What Is Portability and How Does It Work?

Portability allows a surviving spouse to use any unused portion of their deceased spouse’s federal estate tax exemption. This effectively allows married couples to combine their exemptions, protecting up to $30 million from federal estate tax in 2026.

To claim portability, the executor of the deceased spouse’s estate must file a federal estate tax return (IRS Form 706) within the deadline, even if no estate tax is owed. The surviving spouse can then apply the transferred exemption amount to offset future gift or estate tax liability.

The deadline for making a late portability election is five years from the date of the first spouse’s death. Making this election is strongly recommended for married couples, especially if the surviving spouse’s estate could exceed the exemption amount in the future.

Does California Have an Estate Tax or Inheritance Tax?

California does not have a state estate tax or inheritance tax. The California estate tax was repealed in 1982, and California has never imposed an inheritance tax. This means California residents are only subject to federal estate tax if their estate exceeds the federal exemption amount.

This is good news for San Diego County families. Unlike residents of states such as Massachusetts (with a $2 million exemption) or New York (with a $7.16 million exemption), Californians do not face an additional layer of state death taxes.

However, California residents who own property in other states should be aware that those states may impose their own estate or inheritance taxes on property located within their borders.

Why Estate Planning Still Matters for California Families

With such a high federal estate tax exemption, you might wonder whether estate planning is still necessary. The answer is yes, especially for California homeowners. While estate tax may not be a concern for most families, probate is a very real issue for anyone who owns real property in California.

California Probate Affects Most Homeowners

California requires full probate administration for estates with assets exceeding $208,850 (effective April 1, 2025). Since the median home price in San Diego County well exceeds this threshold, most homeowners’ estates will require probate without proper planning.

California probate typically takes 12 to 18 months for straightforward estates and can take two years or longer for complex situations. During this time, your family cannot sell or refinance the home, and assets are tied up in court proceedings.

Probate Costs Are Significant

California has statutory probate fees based on the gross value of the estate (not equity). Both the attorney and the executor are entitled to these fees under California Probate Code Section 10810:

These fees are based on the gross value of the estate before deducting mortgages or other debts. A home worth $1.2 million with a $600,000 mortgage still results in probate fees calculated on the full $1.2 million value.

A Living Trust Avoids Probate

A properly funded revocable living trust allows your assets to pass directly to your beneficiaries without court involvement. The trust administration process is private, typically takes weeks instead of months, and avoids statutory probate fees. For most California homeowners, the cost of establishing a living trust is a fraction of potential probate fees.

Estate Tax Planning for Business Owners

If you own a business or professional practice, the value of your business is included in your estate for federal estate tax purposes. For successful business owners, this can push the total estate value above the $15 million exemption.

Proper planning can help reduce the taxable value of your estate through strategies such as family limited partnerships, intentionally defective grantor trusts, or structured gifting programs. Business succession planning can also ensure a smooth transition while minimizing tax liability.

If your estate may exceed the federal exemption amount, consulting with an experienced estate planning attorney is essential. The cost of proper planning is minimal compared to a potential 40% estate tax on assets above the exemption.