Estate and Gift Planning Now That the Higher Exemption Is Permanent

For years, estate planning ran on a deadline. The higher federal estate and gift tax exemption was scheduled to expire after 2025. The July 2025 federal tax law removed the expiration.

With less deadline pressure, the questions change. For most families they now center on income tax basis, passing on a business, and the gifts that have to be made by December 31.

What changed and what did not

For 2026, each person can transfer $15,000,000 during life or at death free of federal estate and gift tax, and a married couple can protect $30,000,000 with planning. The amount rises with inflation starting in 2027. Taxable lifetime gifts reduce what is left for your estate. The exemption from the separate generation-skipping transfer tax, which can apply to gifts to grandchildren, is also $15,000,000. Amounts above the exemption are taxed at up to 40 percent.

Permanent means no expiration date. Congress can still change the law, so a sound plan works today without depending on these rules forever.

Use the 2026 annual exclusion

Apart from the lifetime amount, you can give up to $19,000 outright to any person in 2026 without using exemption or filing a gift tax return. A married couple can give $38,000 per recipient, though if the money comes from one spouse, that takes a gift-splitting election on Form 709. Unused room does not carry into 2027. A check counts for 2026 only if it is deposited or cashed in 2026, so send it early.

Tuition and medical bills you pay directly to the school or provider are excluded on top of that, with no dollar limit. The education exclusion covers tuition only, not room, board, or books.

A 529 plan allows a larger gift up front. You can contribute five years of annual exclusions at once, up to $95,000 per beneficiary in 2026, and elect on Form 709 to spread it over five years. If you die during that period, part of the gift comes back into your estate.

Gift tax returns and deadlines

Form 709 for 2026 gifts is due April 15, 2027, and extending your income tax return extends it too. You generally file when gifts to anyone other than your spouse exceed the annual exclusion, or to elect gift-splitting or the 529 spread. Tax is rarely due, because the gift uses part of your lifetime exemption instead.

A gift that is adequately disclosed starts the clock on how long the IRS can question its value. For a business interest or real estate, that usually means a qualified appraisal, plus an explanation of any discount for a minority interest or lack of marketability.

Basis now drives the decision

For families well under the exemption, the income tax on a later sale often matters more than estate tax. Property you inherit generally takes a basis equal to its market value at the date of death. Property you receive as a gift generally keeps the giver's basis.

The difference is large for appreciated business interests and real estate. Take an illustrative rental worth $2,000,000 with a $300,000 tax basis. Give it to your daughter, and she keeps your $300,000 basis and owes tax on the gain when she sells. Leave it to her at death, and her basis generally becomes $2,000,000.

California, a community property state, adds a benefit for married couples. When one spouse dies, both halves of community property generally get a new basis, not just the deceased spouse's half. By contrast, assets in an irrevocable trust kept outside your estate generally get no new basis at death. The IRS confirmed this in Revenue Ruling 2023-2, even for trusts whose income is still taxed to you.

Lifetime gifts still have a place. They move future growth out of your estate and can put a successor in charge of a business. The cost is the lost step-up, so we weigh it against any estate tax saved.

Passing on a business interest

Gifts of business interests need legal and tax work together. Generally only individuals, estates, and certain trusts can own S corporation stock, and some trusts must file an election within a short window. A transfer to an ineligible owner can end the S election. Work with an estate attorney on the documents and any trust. We handle the gift tax return, the appraisal coordination, and the income tax side.

Portability for married couples

When the first spouse dies, the unused exemption can pass to the survivor, but only if the executor elects portability on an estate tax return. That return is due nine months after death, or fifteen months with an extension, even when no tax is owed. If the election was missed, a simplified late election is available up to five years after death for estates that were not otherwise required to file.

What California adds

California has no estate tax, inheritance tax, or gift tax. Property tax is the bigger state issue. Under Proposition 19, a parent's primary home can pass to a child at the parent's taxable value only if the child also makes it a principal residence and files for the homeowners' exemption. Filing within one year of the transfer protects the benefit from the date of transfer. A later filing helps only going forward. Even when the exclusion applies, value above the parent's taxable value plus $1,044,586 (for transfers through February 15, 2027) is added to the assessment. Rentals and second homes are reassessed, and the exclusion does not cover interests in an LLC or partnership that owns property. Settle these with your attorney before any transfer.

What to do before December 31

Make annual exclusion gifts early enough to clear the bank. Pay tuition or medical bills directly if you planned to help anyway. List your major assets with their tax basis, not only their value, and note any you may sell soon. If you own part of a business, gather the operating or shareholder agreement and any recent valuation. Ask your attorney whether wills and trusts drafted around older exemption amounts still work as intended.

Book a planning call

To review gifts, basis, or a business transition before year end, book a time with our team at calendly.com/kirkcole/15-minute-meeting. We work alongside your estate attorney.

This article is general information, not tax advice for your situation. Tax rules change, and the right move depends on your facts.