2026 Federal Estate Tax Exemption

I recently had a client, Wendy, come to me in a panic. She’d carefully reviewed her parents’ estate plan, created fifteen years ago, assuming a certain level of tax protection. Now, facing the imminent passing of her father, she discovered the estate was projected to exceed the old exemption thresholds, triggering potentially crippling estate taxes. Her meticulous planning was about to result in a six-figure bill – a cost she simply hadn’t anticipated. It’s a scenario I see far too often; estate plans become outdated, and laws change, leaving families vulnerable.

The good news is, the federal estate tax landscape has shifted significantly, and for many, the “sunset” provisions feared for years have been permanently averted. The One Big Beautiful Bill Act (OBBBA) permanently established the Federal Estate Tax Exemption at $15 million per person ($30 million for couples) effective Jan 1, 2026. This eliminates the ‘2026 Sunset’ fear, though the top tax rate remains at 40% for assets exceeding this permanent threshold, which is now indexed annually for inflation.

However, “permanent” doesn’t equate to “unlimited.” While the $15 million exemption is substantial, it’s crucial to understand it’s not a blank check. As a CPA as well as an attorney for over 35 years, I can tell you that accurately valuing complex assets – businesses, real estate, collectibles – is paramount. An undervalued estate isn’t just a matter of reducing taxes; it opens the door to severe penalties from the IRS. I’ve seen clients unwittingly trigger audits due to overly optimistic appraisals, far outweighing any initial tax savings.

What assets are included in my federal estate tax calculation?

• All individually owned property: This includes cash, brokerage accounts, real estate, vehicles, and personal belongings. It’s a comprehensive net worth assessment.
• Life insurance proceeds: The death benefit of life insurance policies owned by the decedent is generally included in the estate, unless structured properly using an irrevocable life insurance trust (ILIT).
• Retirement accounts: IRAs, 401(k)s, and other qualified retirement plans are included, though beneficiary designations can significantly impact estate tax implications.
• Business interests: The value of your ownership stake in a business – whether a sole proprietorship, partnership, LLC, or corporation – is included. This is where professional valuation is essential.

How does the CPA advantage help with estate tax planning?

My dual background as an attorney and CPA provides a unique advantage to my clients. We don’t just look at estate taxes in isolation. We consider the ‘step-up in basis’ for inherited assets, which can dramatically reduce capital gains taxes down the line. For example, if Wendy inherits a property with a current value of $2 million but a cost basis of $500,000, her capital gains tax liability will be based on the $1.5 million difference. This is a huge benefit often overlooked by estate planners who lack a CPA perspective.

Furthermore, accurately valuing a business requires specialized expertise. I’ve handled numerous business valuations, working with forensic accountants to ensure compliance and minimize audit risk. A poorly executed valuation can lead to IRS scrutiny and substantial penalties.

What about gifting strategies and reducing my estate size?

While the $15 million exemption is substantial, proactive gifting strategies can further reduce your taxable estate. Each year, you can gift up to a specific amount (currently $18,000 per recipient in 2024) without triggering gift tax consequences. These gifts don’t count against your lifetime exemption. However, it’s critical to file the necessary paperwork (Form 709) to properly document these gifts.

Controlling Legal Standards Governing California Estate and Asset Transfers

• Probate & Court Procedure:
  California Courts – Wills, Estates, and Probate
  The official judicial branch guide for navigating the probate process; it provides updated 2026 checklists for determining if an estate qualifies for “Summary Probate” under the $208,850 personal property limit or the $750,000 primary residence threshold (AB 2016).
• Property Tax Reassessment (Prop 19):
  California State Board of Equalization (Prop 19)
  The definitive resource for understanding the “Parent-to-Child” reassessment exclusion; it outlines the strict one-year deadline for heirs to move into an inherited home as their primary residence to maintain the parent’s low property tax base.
• Advance Healthcare Planning:
  California Attorney General – Advance Health Care Directive
  Provides the official California statutory form and legal guidelines for appointing a health care agent; this resource emphasizes the necessity of combining a medical power of attorney with a HIPAA release to ensure doctors can communicate with family during an emergency.
• Federal Estate & Gift Tax:
  IRS Estate Tax Guidelines
  The authoritative federal portal for estate and gift tax reporting; this page reflects the 2026 “OBBBA” permanent exemption of $15 million per person, effectively replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.
• Digital Asset Access (RUFADAA):
  California RUFADAA Law (Probate Code §§ 870-884)
  Access the full statutory text of the Revised Uniform Access to Digital Assets Act; it explains why executors are legally barred from accessing encrypted accounts, email, or crypto-wallets unless the decedent provided explicit “prior consent” in their estate plan.

How do probate courts in California evaluate intent when a will is challenged?

In California, a last will and testament is reviewed under probate standards that focus on intent, capacity, and execution. Clear drafting reduces ambiguity, limits misinterpretation, and helps families avoid unnecessary conflict during estate administration.

To distribute property effectively, you must define estate assets, clarify who inherits, and understand how estate liabilities impact the final distribution.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Controlling Legal Standards Governing California Estate and Asset Transfers

• Probate & Court Procedure:
  California Courts – Wills, Estates, and Probate
  The official judicial branch guide for navigating the probate process; it provides updated 2026 checklists for determining if an estate qualifies for “Summary Probate” under the $208,850 personal property limit or the $750,000 primary residence threshold (AB 2016).
• Property Tax Reassessment (Prop 19):
  California State Board of Equalization (Prop 19)
  The definitive resource for understanding the “Parent-to-Child” reassessment exclusion; it outlines the strict one-year deadline for heirs to move into an inherited home as their primary residence to maintain the parent’s low property tax base.
• Advance Healthcare Planning:
  California Attorney General – Advance Health Care Directive
  Provides the official California statutory form and legal guidelines for appointing a health care agent; this resource emphasizes the necessity of combining a medical power of attorney with a HIPAA release to ensure doctors can communicate with family during an emergency.
• Federal Estate & Gift Tax:
  IRS Estate Tax Guidelines
  The authoritative federal portal for estate and gift tax reporting; this page reflects the 2026 “OBBBA” permanent exemption of $15 million per person, effectively replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.
• Digital Asset Access (RUFADAA):
  California RUFADAA Law (Probate Code §§ 870-884)
  Access the full statutory text of the Revised Uniform Fiduciary Access to Digital Assets Act; it explains why executors are legally barred from accessing encrypted accounts, email, or crypto-wallets unless the decedent provided explicit “prior consent” in their estate plan.