Important Educational Disclaimer
This article is for educational and informational purposes only and does not constitute legal, tax, financial, or estate planning advice. Federal and state estate tax laws are complex and individual circumstances vary significantly. Rates and rules current as of May 20, 2026. The Savvy Investor Guide is an educational resource operated by The Savvy Investor Limited (UK Company No. 14816921) and does not provide regulated advice in the United States or the United Kingdom. Before making any estate planning decisions, consult a qualified estate planning attorney and certified public accountant licensed in your state.
The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, permanently raised the federal estate and gift tax exemption to $15 million per person ($30 million per married couple) effective January 1, 2026. The previous Tax Cuts and Jobs Act exemption of $13.99 million in 2025 would have reverted to roughly $7 million at year-end 2025 without legislative action. OBBBA resolved that cliff, went higher, and removed the sunset. For most US households, the federal estate tax is now a non-issue. The state estate tax in roughly a dozen states still bites, and the planning implications for high-net-worth and middle-class families have shifted meaningfully. Here is the picture as of May 2026.
In short
- Federal estate and gift tax exemption: $15 million per person ($30 million per married couple) for 2026, indexed annually for inflation from 2026 onward. No sunset.
- Annual gift tax exclusion (2026): $19,000 per donee. A married couple can jointly give $38,000 to each donee per year without using lifetime exemption.
- Generation-Skipping Transfer (GST) tax exemption tracks the basic exclusion: also $15 million per person in 2026.
- SALT deduction cap raised to $40,000 for federal income tax purposes, phasing out for taxpayers with adjusted gross income above $500,000 (phase-out reduces the deduction to $10,000 for high earners). The cap rises 1% annually through 2029.
- Portability of unused spousal exemption remains available. The Deceased Spousal Unused Exemption (DSUE) election must be made on a timely-filed Form 706 estate tax return within 9 months of the first spouse’s death (with possible extension).
- State estate tax still applies in approximately 12 states. The most material are: New York (2026 exclusion $7.35 million, up from $7.16 million in 2025); Massachusetts (fixed exclusion $2 million); Oregon ($1 million floor with progressive rates); Connecticut ($13.99 million matching pre-OBBBA federal). Washington, Hawaii, Illinois, Maine, Maryland, Minnesota, Rhode Island, Vermont, and the District of Columbia maintain estate or inheritance taxes with various exemption levels.
- Step-up in basis at death remains intact. Inherited appreciated assets continue to receive a basis adjustment to fair market value at the decedent’s date of death (or the alternate valuation date six months later), eliminating accumulated capital gains.
- The cross-Atlantic contrast: the same week we are writing this, the UK Treasury and HMRC are tightening pension inheritance tax mechanics from April 2027 (see UK Pension IHT 2027 Estate Planning Guide). The two countries are moving in opposite directions on transfer taxation. For families with assets on both sides of the Atlantic, the planning calculus has changed materially.
What OBBBA actually did to federal estate tax
The One Big Beautiful Bill Act, signed on Independence Day 2025, was the largest single change to US transfer taxation since the Tax Cuts and Jobs Act of 2017. Three things matter for most readers.
First, the basic exclusion amount. Before OBBBA, the TCJA had set the federal estate and gift tax exemption at $11.18 million per person in 2018, indexed for inflation, reaching $13.99 million in 2025. That exemption was scheduled to sunset on December 31, 2025, reverting to roughly $7 million per person in 2026 (the pre-TCJA $5 million baseline, indexed for intervening inflation). OBBBA cancelled the sunset and set the new exemption at $15 million per person from January 1, 2026, indexed for inflation thereafter. The Joint Committee on Taxation scoring projects the 2027 exemption at approximately $15.45 million and the 2030 exemption at approximately $17.5 million on baseline inflation assumptions.
Second, the permanence. The 2017 TCJA exemption was always a temporary measure with a sunset date. The OBBBA exemption has no sunset clause in the statute. A future Congress could change it through new legislation, but the planning posture for families and their advisers is materially different when the law is presented as permanent rather than expiring. The “use it or lose it” pressure that drove a wave of 2024-2025 gifting strategies is gone.
Third, the GST exemption tracking. The Generation-Skipping Transfer tax exemption, which applies to transfers to grandchildren and later generations, continues to match the basic exclusion at $15 million per person in 2026. For families using dynasty trusts to skip generations, the GST exemption is the operative number; OBBBA’s permanence applies here too.
Portability and the DSUE election
Spousal portability remains a critical planning tool. When the first spouse dies, the surviving spouse can elect to inherit the deceased spouse’s unused exemption (the DSUE amount), effectively doubling the survivor’s available exemption.
The DSUE election requires a timely-filed Form 706 estate tax return. The standard filing deadline is 9 months after the date of death. An automatic 6-month extension is available by filing Form 4768. The IRS has generally been willing to grant 9100 relief (late election relief) for portability returns filed within five years of the date of death where the only purpose of the filing is the portability election. Beyond five years, late portability elections become substantially harder to secure.
The practical implication for families with combined estates under $30 million: when the first spouse dies, file the Form 706 to elect portability even if no estate tax is owed. The administrative cost is modest; the protection for the survivor against future legislative tightening is substantial.
What still bites: state estate tax in approximately 12 jurisdictions
Federal estate tax is now a non-issue for an estate under $15 million per spouse, but state estate tax still applies in roughly 12 jurisdictions. The exposure varies dramatically by state of residence at death.
New York has a 2026 estate tax exclusion of $7.35 million (up from $7.16 million in 2025, indexed annually). Estates between $7.35 million and approximately 105% of that exclusion ($7.72 million) are subject to a punitive “cliff” rule that taxes the entire estate, not just the amount above the exclusion. Above 105%, the standard graduated estate tax rates apply, with a top marginal rate of 16%.
Massachusetts applies estate tax to any taxable estate over $2 million as of the 2023 reform. Below $2 million, no estate tax. Above $2 million, the estate is taxed on the full taxable amount (no exclusion stack), with rates ranging from 0.8% to 16%. The Massachusetts exclusion has not been indexed and is materially lower than most other state-level exclusions; this catches a large share of moderate-net-worth Massachusetts households.
Other states with estate or inheritance tax include Oregon ($1 million exclusion, progressive rates), Connecticut (matches the pre-OBBBA federal at $13.99 million in 2025; the state has not yet decided whether to follow OBBBA’s $15 million in 2026), Washington ($2.193 million indexed), Hawaii, Illinois ($4 million), Maine ($6.41 million), Maryland ($5 million), Minnesota ($3 million), Rhode Island ($1.733 million), Vermont, and the District of Columbia ($4 million). Iowa, Kentucky, Nebraska, New Jersey, and Pennsylvania apply inheritance tax (different from estate tax: assessed on the recipient, with rates and exemptions varying by relationship to the decedent).
For a high-net-worth family living in California, Texas, Florida, or any of the 38 other states without estate or inheritance tax, the federal exemption is the only meaningful estate tax threshold. For a family in New York, Massachusetts, Oregon, or similar, state-level exposure can easily exceed federal exposure, and state-level planning (state-domicile changes, qualified terminable interest property trusts, marital deduction structures) remains an active area.
The SALT cap change matters too
OBBBA raised the state and local tax (SALT) deduction cap from $10,000 to $40,000 for federal income tax purposes, with a phase-out for taxpayers with adjusted gross income above $500,000. The phase-out reduces the deduction back toward $10,000 for high earners, so the headline $40,000 cap applies in full only to taxpayers with AGI below the threshold.
The cap rises 1% annually through 2029, reaching approximately $41,624 by tax year 2029. The phase-out threshold is also subject to indexing.
For middle and upper-middle income taxpayers in high-tax states, this is a meaningful federal income tax reduction. A New York or California taxpayer paying $40,000+ in combined state income and local property taxes can now deduct the full amount against federal income, eliminating the $10,000 cap that bound deductions under TCJA. For a 32% federal bracket taxpayer, the additional $30,000 of deductible SALT translates to roughly $9,600 in annual federal tax savings.
The SALT change is income-tax mechanics rather than estate-tax mechanics, but it interacts with estate planning in one important way: it changes the after-tax value of staying in a high-tax state during retirement. The state-domicile arbitrage that drove a wave of Florida and Texas relocations under TCJA is now less compelling than it was; the federal SALT relief partially restores the after-tax position of high-income retirees in New York, California, New Jersey, and Connecticut.
Aside: state conformity to OBBBA’s 529 K-12 expansion. OBBBA also expanded the 529 plan rules to allow tax-free distributions of up to $20,000 per year for K-12 tuition and to cover certain credentialing programs. The federal treatment is settled; state-level tax treatment is not. States do not automatically conform to federal 529 rule changes. Some states have already updated their 529 conformity to follow OBBBA; others have not, and a 529 distribution that is tax-free at the federal level may still trigger state income tax (and in some states a recapture of prior-year state tax deductions) in a non-conforming state. If you are using 529 funds for K-12 in 2026, verify your state’s current conformity position with your state’s tax authority or a CPA licensed in your state before taking the distribution. A standalone Savvy Investor piece on the OBBBA 529 K-12 expansion is in the pipeline.
Step-up in basis at death: still alive, still material
Step-up in basis at death is the single most powerful tax provision in US estate planning, and OBBBA did not touch it. When a US person dies holding appreciated assets, the inheriting party receives those assets with a new cost basis equal to the fair market value at the decedent’s date of death (or the alternate valuation date six months later). All accumulated capital gains are eliminated for income tax purposes.
For families with substantial appreciated assets (long-held public stock, residential real estate purchased decades ago, family business equity), step-up at death often produces a larger tax saving than the estate tax exemption itself. A $5 million stock position purchased at $500,000 carries $4.5 million in unrealized capital gain. If sold during the holder’s lifetime, the federal long-term capital gains rate of 20% plus 3.8% net investment income tax produces a tax bill of approximately $1.07 million. If held until death and inherited, the basis steps up to $5 million and the gain is eliminated.
This interacts with the OBBBA estate exemption in an interesting way. For families with assets between $15 million (single) or $30 million (married) federal exemption and the breakpoint where federal estate tax would be due, the optimal strategy is usually to hold appreciated assets until death (capture step-up) rather than gift them during life (lock in the donor’s basis for the recipient). For families above the federal exemption, gifting appreciated assets is often still optimal because the estate tax savings exceed the lost step-up. The OBBBA $15 million exemption has therefore shifted the breakeven point materially upward.
The UK contrast: pensions are being pulled into inheritance tax
UK readers will know that the picture in the United Kingdom is moving in the opposite direction. From April 2027, defined contribution pension pots will be brought into UK inheritance tax (IHT) for the first time, ending the long-standing exemption that made pensions one of the most tax-efficient estate planning vehicles in the UK. HMRC’s May 11, 2026 technical note confirmed the section 226A withholding mechanics (personal representatives can issue notices covering up to 50% of a beneficiary’s pension entitlement) and the section 226B Pensions Direct Payment Scheme (allowing direct administrator-to-HMRC payment). LCP has publicly warned that final HMRC guidance will not arrive until spring 2027, weeks before the April 2027 implementation date.
For SIG readers with family on both sides of the Atlantic, the planning posture has shifted in opposite ways during the same calendar quarter. US estate planning has substantially less federal exposure than at any point since pre-2001; UK estate planning has substantially more exposure than at any point in the modern UK pensions era. For couples or families with assets in both jurisdictions, this is a planning moment worth a comprehensive review with advisers in both countries.
Who benefits most from the OBBBA changes
Three groups see materially improved planning positions.
1. High-net-worth families just over the prior TCJA exemption
Families with combined estates in the $14 million to $30 million range were within reach of federal estate tax under the TCJA exemption. OBBBA pushes that range entirely outside federal estate tax. For these families, the planning posture is now dominated by income tax efficiency (capture step-up, optimize Roth conversions) and state-level exposure.
2. Married couples planning to use portability
The combined $30 million exemption available to married couples through portability is now permanent. Families that had been doing aggressive lifetime gifting to lock in the 2025 exemption before the sunset can now slow that activity. The sunset-driven 2024-2025 gifting rush is over.
3. High-earning households in high-tax states
The SALT cap rising from $10,000 to $40,000 (subject to AGI phase-out) is a meaningful annual federal income tax saving for upper-middle-class families in New York, California, New Jersey, Connecticut, Massachusetts, and similar. The annual saving compounds over a retirement-planning horizon.
Who still has substantive work to do
Two groups still need active planning despite OBBBA.
1. Families in high-state-estate-tax states
A New York family with a $10 million estate has zero federal exposure but a state estate tax bill of approximately $400,000 to $600,000 depending on the exact estate composition and use of state-level marital deduction structures. A Massachusetts family with a $4 million estate faces approximately $250,000 to $350,000 in state estate tax. These exposures have not changed with OBBBA. State-level planning, domicile changes, and qualified terminable interest property trusts remain active. The federal change does not solve the state problem.
2. Families with assets above $30 million combined
For ultra-high-net-worth families, OBBBA reduces but does not eliminate the federal estate tax exposure. The $30 million combined exemption protects the first slice; assets above that face a 40% federal estate tax. Active gifting, charitable remainder trusts, family limited partnerships, dynasty trusts, and intentionally defective grantor trusts (IDGTs) all remain relevant. The 40% top federal rate is unchanged by OBBBA.
FAQ
Is the federal $15 million exemption per person or per couple?
Per person. Each spouse has their own $15 million exemption. A married couple has a combined $30 million when portability is used (or $30 million in directly held assets between them). The exemption is indexed annually for inflation from 2026 forward.
What is the annual gift tax exclusion in 2026?
$19,000 per donee per year (up from $18,000 in 2024 and 2025). A married couple can jointly give $38,000 to each donee per year without using any lifetime exemption. There is no limit on the number of donees. For families using systematic annual gifting (to children, grandchildren, in-laws), the annual exclusion compounds quickly across multiple generations.
Do I still need to file Form 706 if my estate is under the exemption?
If you want to preserve portability for the surviving spouse, yes. The DSUE election requires a timely Form 706, even if no estate tax is owed. Without the election, the unused exemption is lost. The cost of preparing a portability-only Form 706 is usually a few thousand dollars; the protection it provides for the survivor’s eventual estate is potentially much larger if legislation later tightens the exemption.
Did OBBBA change capital gains tax or step-up at death?
No. Long-term capital gains rates remain 0%, 15%, or 20% based on taxable income, plus the 3.8% net investment income tax for higher earners. Step-up in basis at death remains intact. Several proposed reforms in 2021-2024 would have changed step-up; none of them passed and OBBBA did not include them.
What about gifts that used 2025 exemption — are they “clawed back” now that the exemption is permanent?
No. Gifts made in 2024 or 2025 using the then-current TCJA exemption are not retroactively clawed back by the OBBBA exemption being higher than expected. The anti-clawback regulations issued in 2019 confirmed that taxpayers who used the TCJA exemption while it was in force are not penalized if the exemption is later raised or held at the higher level. Families that did 2024-2025 gifting to lock in the exemption before the sunset have not been disadvantaged.
Does this affect my IRA or 401(k) beneficiary planning?
Not directly. Retirement account beneficiary designations and the SECURE Act 10-year distribution rule remain unchanged by OBBBA. The estate exemption increase does, however, give families more room to leave retirement accounts to a credit-shelter trust or marital trust without estate-tax friction, which can be relevant for families designing multi-generational retirement-account strategies.
I live in New York with a $10 million estate. What does OBBBA actually do for me?
OBBBA eliminates your federal estate tax exposure (the federal exemption of $15 million single is well above your $10 million estate). However, New York’s 2026 estate tax exclusion of $7.35 million means your estate is still over the New York exclusion, and the New York “cliff” rule means estates above approximately $7.72 million face tax on the full taxable amount, not just the amount above the exclusion. Your state-level exposure has not changed. State-level planning (consideration of credit shelter trusts at the first death, marital deduction optimization, possible domicile review) remains relevant.
The Savvy Investor’s take
The OBBBA estate tax change is one of the most consequential personal-finance laws of the past decade, but the consequence is concentrated in a smaller share of households than many headlines suggest. For the roughly 99% of US households with combined estates under $30 million, federal estate tax is now a non-issue and the planning focus shifts entirely to income tax efficiency, capital gains management, and state-level exposure. For the small group of families above $30 million combined, OBBBA reduces but does not eliminate the planning workload.
The change worth acting on this year is not estate tax per se. It is the SALT cap rising from $10,000 to $40,000, which produces meaningful annual federal income tax savings for upper-middle-class households in high-tax states. For families that had been considering a domicile change to Florida or Texas primarily for SALT relief, the calculus is now meaningfully different. The state income tax differential is the same, but the federal benefit of deducting it has been partially restored.
The bigger picture is the contrast with the UK. The same calendar quarter that saw OBBBA permanently raise the US federal estate exemption to $15 million also saw HMRC and the UK Treasury confirm that UK pensions will be pulled into UK inheritance tax from April 2027. Two countries moving in opposite directions on transfer taxation is unusual, and it matters for any family with assets in both jurisdictions. The cross-border planning advisers will be busy in 2026.
Information, not advice. This article describes federal estate tax provisions under the One Big Beautiful Bill Act of 2025 and selected state-level estate tax positions as of May 20, 2026. It is not personal legal, tax, financial, or estate planning advice. State estate tax law is complex and changes frequently; the figures cited reflect publicly available 2026 numbers but James and his readers should verify current state law with a qualified estate planning attorney in their state of residence before acting. Savvy Investor Guide is not authorized or regulated by the US Securities and Exchange Commission or the Financial Conduct Authority.
Key sources
- Morgan Lewis: Estate Tax Alert — New $15M Federal Exemption Becomes Law
- IRS: One Big Beautiful Bill provisions overview
- Harter Secrest: OBBBA Permanent Estate Tax Exemptions and SALT Deduction Changes
- Harris Beach Murtha: 2026 Adjustments to Estate, Gift, GST Tax and Income Tax Brackets
- Savvy Investor Guide: UK Pension Inheritance Tax 2027 Estate Planning Guide (the UK sibling article)
- Savvy Investor Guide: Same month, opposite direction: UK CPI 2.8% vs US CPI 3.8% (broader UK-US divergence context)
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