The $15 Million Exemption Is Here — But That Doesn't Mean You Can Stop Planning

"We're Under the Limit, So We're Fine"

This is one of the most common things we hear from clients in 2026, and we understand why. Last July, the One Big Beautiful Bill Act (OBBBA) was signed into law, permanently setting the federal estate and gift tax exemption at $15 million per individual — $30 million for a married couple. The threat of that number dropping to roughly $6 million at the end of 2025 is gone. The higher exemption is here to stay, at least barring another act of Congress.

So yes, if you are a single person with a $2 million estate, you are very likely under the federal estate tax threshold. But "under the threshold" and "done planning" are two very different things. Let us talk about why.

The Portability Trap: It Doesn't Happen Automatically

Here is something that catches a surprising number of families off guard. When one spouse dies, the surviving spouse can potentially "inherit" the deceased spouse's unused estate tax exemption through a mechanism called portability. This is a genuinely useful tool — it means a surviving spouse can effectively protect up to $30 million from estate tax rather than $15 million.

But portability does not happen automatically. It requires the executor of the first spouse's estate to timely file a federal estate tax return — Form 706 — even if no estate tax is owed. The deadline is nine months from the date of death, with a possible six-month extension. Miss that window, and the unused exemption is gone.

We have seen estates where the surviving spouse had significant assets accumulated after their spouse's death — a business that appreciated dramatically, real estate that increased in value, an inheritance from a parent — only to find that the opportunity to use the deceased spouse's exemption had expired years earlier, unnoticed, because nobody filed the 706.

If your spouse passes away and you believe you have "nothing to worry about" on taxes, please call an estate planning or tax attorney before that nine-month window closes.

The Basis Step-Up Problem With Irrevocable Trusts

This one requires a bit of explanation, but it matters enough to be worth reading carefully.

When you inherit property — a house, stocks, investments — the tax law generally allows you to "step up" the cost basis of that property to its fair market value at the date of death. This is enormously valuable, because it can eliminate years of built-up capital gains. If your parent bought a rental house in 1985 for $80,000 and it is worth $600,000 at their death, you inherit it with a $600,000 basis — meaning you could sell it immediately and owe no capital gains tax.

In 2023, the IRS issued Revenue Ruling 2023-2, which clarified an important limitation: to receive this step-up in basis, the asset must be included in the decedent's taxable estate. If an asset is held in a certain type of irrevocable trust that excludes the asset from the taxable estate, that asset does NOT get the step-up.

Why does this matter in 2026? Many families with irrevocable trusts — often set up years ago for Medicaid planning, asset protection, or tax reasons when the exemptions were lower — may discover that their trust structure is working against their heirs on capital gains. The trust excluded assets from the estate tax (which may no longer matter given the $15 million exemption), but in doing so, it also blocked the capital gains step-up that could have saved the heirs far more money.

This is exactly the kind of thing worth reviewing with an attorney in light of the new exemption levels.

A Scenario Worth Considering

Imagine a physician in Winter Park who set up an irrevocable trust in 2018 with the primary goal of keeping her estate under the federal exemption, which was $11 million at the time. She transferred appreciated stock and a rental property into the trust. At her death, the combined estate is $8 million — well under the current $15 million threshold, so there is no estate tax.

But the stock she transferred into that trust had a cost basis of $200,000 and is now worth $1.4 million. Because the trust was structured to exclude it from her estate, her heirs do not receive a basis step-up. They inherit the $200,000 basis. If they sell, they owe capital gains tax on $1.2 million in gain — potentially $180,000 or more in federal capital gains taxes, depending on their rates.

Would her heirs have been better off if the stock had simply remained in her taxable estate? In many cases, yes. This is not a flaw in estate planning — it is a reason to revisit older plans in light of new tax law.

Annual Gifting Is Still a Smart Strategy

Even if your estate is well under $15 million, annual gifting remains one of the simplest and most effective wealth transfer tools available. In 2026, you can give up to $19,000 per recipient per year — completely free of gift tax and without using any of your lifetime exemption. For a couple with three adult children and six grandchildren, that is $342,000 per year that can move out of the estate with zero tax consequence.

Used consistently over time, annual gifting is one of the most reliable ways to reduce a taxable estate without any complex trust structures.

For Those Closer to the Threshold

If your estate is approaching or above $10 million — particularly if you own a closely held business, significant real estate, or have substantial retirement accounts — the landscape is more nuanced. Business valuation discounts, intentionally defective grantor trusts (IDGTs), spousal lifetime access trusts (SLATs), and charitable planning strategies are all worth discussing with an attorney who has tax credentials.

David A. Yergey III, Esq., LL.M. (Taxation), has advanced training in exactly this area and works with clients across the wealth spectrum.

Practical Next Steps

Pull out your existing estate planning documents — including any irrevocable trust agreements — and check when they were created and what their primary goals were. If those goals assumed a lower exemption threshold, the plan may benefit from a review.

If your spouse passed away in the last several years and nobody filed a Form 706, contact an estate attorney right away. There is a late-filing procedure that may still be available to you.

If you have been making annual gifts, make sure they are documented properly and consistent with your overall estate plan.

How Our Firm Helps

We encourage clients to bring in what they found online so we can explain what is right, what is wrong, and what the tradeoffs are. A conversation with a lawyer is better than guessing based on internet content, online forms, or AI-generated answers — particularly when tax law changes as quickly as it has in recent years.

Our firm advises clients ranging from young professionals building their first estate plan to families navigating complex business succession and high-net-worth tax planning. We are here to help you understand how the current law affects your specific situation.

Frequently Asked Questions

Q: The exemption is $15 million. I have $4 million. Why do I need an estate plan?

A: Federal estate tax is not the only reason to plan. Probate avoidance, incapacity planning, guardianship of minor children, protection of assets from creditors, and efficient transfer to heirs are all reasons to have a plan regardless of your estate's size.

Q: What exactly is portability and why does it require filing a tax return?

A: Portability is the ability of a surviving spouse to use the deceased spouse's unused estate tax exemption. The IRS requires a Form 706 to be filed to make the portability election — it does not happen by default. Even if the estate owes no tax, the 706 must be filed to preserve the election. Missing this deadline is a common and costly mistake.

Q: My irrevocable trust was set up years ago. Should I change it?

A: Irrevocable trusts generally cannot be changed unilaterally — that is part of what makes them effective for certain purposes. However, Florida law allows for trust modifications through decanting and trust reformation under certain circumstances. An attorney can evaluate whether your current structure is still serving your goals under today's tax law.

Q: What is the annual gift exclusion and how does it work?

A: In 2026, you can give up to $19,000 to any individual per year without it counting toward your lifetime exemption or triggering gift tax. Spouses can combine their exclusions to give $38,000 per recipient. These amounts are adjusted periodically for inflation.

Q: Is it true that assets in some trusts don't get the step-up in basis?

A: Yes. Revenue Ruling 2023-2, issued by the IRS in 2023, confirmed that assets held in an irrevocable trust that are not included in the decedent's taxable estate do not receive a step-up in basis. This is an important planning consideration, especially for older trusts established when the estate tax exemption was much lower.

Call to Action:

If you have not reviewed your estate plan since the OBBBA became law — or if you have an irrevocable trust that was set up under the old exemption numbers — it is worth having a conversation. Call (407) 843-0430 or visit orlandoprobatelawyer.com to schedule a consultation. Our firm has the tax and estate planning experience to help you make sense of the current law and what it means for your family.