2026 Estate Tax Exemption and Planning Considerations

At a Glance

• The 2025 to 2026 increase in the federal gift and estate tax exemption amount represents a significant opportunity for private clients who continually utilize all their available lifetime exemption amounts.
• Private clients should review their estate plans to confirm that their plans still reflect their goals and review opportunities for optimal estate and tax planning, particularly if they are domiciled or own property in a state with a state estate or inheritance tax.

Lifetime Exemption Amounts Increased to $15,000,000

As of January 1, 2026, the federal gift and estate tax exemption amount, as well as the exemption from the generation-skipping transfer (GST) tax (collectively referred to as the “lifetime exemption amounts”), have increased from $13,990,000 to $15,000,000 per person, an increase of $1,010,000 per person. With proper planning, a married couple may transfer up to $30 million in total free from federal gift, estate, and GST tax. This increase was enacted as part of H.R. 1, commonly referred to as the One Big Beautiful Bill Act (OBBBA), which was signed into law on July 4, 2025. The OBBBA permanently increases the lifetime exemption amounts, unless changed by a future Congress, and provides for annual indexing based on inflation. The 2025 to 2026 increase represents a significant opportunity for clients who continually utilize all their available lifetime exemption amounts.

Annual Gift Tax Exclusion Amount Remains $19,000

As of January 1, 2026, the federal gift tax annual exclusion amount remains $19,000 per donee per donor, or a combined $38,000 per donee for a married couple who elect gift splitting. The annual federal gift tax exclusion is the total amount an individual can give to any person during a calendar year without using any of his or her lifetime exemption amount or incurring a gift tax.

Federal Tax Rates for Estates and Trusts

The highest federal estate tax, gift tax, and GST tax rate remains unchanged at 40% for calendar year 2026. The highest federal income tax rate for estates and nongrantor trusts also remains unchanged at 37% for 2026, applying to taxable income over $16,250 earned in the tax year 2026.

State Estate Tax Exemptions, State Inheritance Tax, and State Gift Tax Considerations

Below is a summary of the estate, inheritance, and gift tax laws in the states where one or more members of Faegre Drinker’s private client team are licensed.

States with No Estate or Inheritance Taxes

• Alabama
• Arizona
• Colorado
• Florida
• Indiana
• Iowa (phased out on January 1, 2025)
• South Dakota
• Wisconsin

States That Have a State Estate Tax and/or a State Inheritance Tax

Illinois

• The Illinois estate tax exemption amount remains $4,000,000. Unlike the federal estate tax exemption, the Illinois estate tax exemption is not portable.
• Illinois does not currently have a state gift tax; however, any federal adjusted taxable gifts made during the decedent’s lifetime are included in the Illinois taxable estate.

Massachusetts

• The Massachusetts estate tax exemption amount remains $2,000,000. Unlike the federal estate tax exemption, the Massachusetts estate tax exemption is not portable.
• Massachusetts does not currently have a state gift tax; however, any federal adjusted taxable gifts made after December 31, 1976, are included in the Massachusetts taxable estate.

Minnesota

• The Minnesota estate tax exemption amount remains $3,000,000. Unlike the federal estate tax exemption, the Minnesota estate tax exemption is not portable.
• Minnesota does not currently have a state gift tax; however, any federal adjusted taxable gifts made within three years of the decedent’s date of death are included in the Minnesota taxable estate.

New Jersey

• New Jersey does not currently have a state estate tax.
• New Jersey inheritance tax may be imposed depending on the relationship between the decedent and the beneficiary, the value and kinds of the property transferred, and whether the decedent died as a New Jersey resident.
• New Jersey does not currently have a state gift tax; however, any federal adjusted taxable gifts made within three years of the decedent’s date of death are included in the New Jersey taxable estate.

New York

• The New York estate tax exemption amount is $7,350,000. Unlike the federal estate tax exemption, the New York estate tax exemption is not portable.
• The New York estate tax rate is graduated, amounts exceeding $7,350,000 are taxed at increasing rates depending on amount of excess. Once the value exceeds 105% of the New York estate tax exemption amount, the estate tax is assessed on the full value of the taxable estate at a rate of 16%. This is referred to as the New York estate “tax cliff.”
• New York does not currently have a state gift tax; however, any federal adjusted taxable gifts made within three years of the decedent’s date of death are included in the New York taxable estate. This provision of the New York tax law was extended until January 1, 2032.

Pennsylvania

• Pennsylvania does not currently have a state estate tax.
• Property transferred from a decedent to a beneficiary (unless the beneficiary is a surviving spouse or a child aged 21 or younger of the decedent, or charity) is subject to a Pennsylvania inheritance tax. The tax rates for this inheritance tax vary depending on the relationship between the decedent and the beneficiary.
• Pennsylvania does not currently have a state gift tax; however, any federal adjusted taxable gifts made within 12 months of the decedent’s date of death may be subject to Pennsylvania inheritance tax.

Next Steps

Private clients should review their estate plans to confirm that their plans still reflect their goals. Changes in tax law, family dynamics, or other circumstances will often trigger the need for an update.

In such cases, you should consult with your attorney to review opportunities for optimal estate and tax planning, particularly if you are domiciled or own property in a state with a state estate or inheritance tax.