By way of background, in 2012, the basic exclusion amount and GST exemption were permanently increased to $5 million, with that amount indexed for inflation. The 2017 Tax Cuts and Jobs Act (TCJA), temporarily increased the basic exclusion amount and GST exemption from $5 million (as indexed for inflation) to $10 million (as indexed for inflation). In 2025, the inflation adjusted basic exclusion amount and GST exemption is $13.99 million per person. Absent legislation that would have extended the increase made by the TCJA, the basic exclusion amount and GST exemption would have dropped in 2026 to $5 million again which, with inflation adjustments, would hover around $7.2 million
The Act § 70106 effectively makes the 2017 doubling of the basic exclusion amount and GST exemption permanent. The Act raises the basic exclusion amount and GST exemption to $15 million in 2026, thereby eliminating the scheduled 2026 reduction in these amounts. This change is effective for estates of decedents dying after December 31, 2025, and for gifts or GSTs after that date. This change is a permanent one (or as permanent as it can be with tax legislation) and the basic exclusion amount and GST exemption will continue to be adjusted for inflation. The increase to $15 million is a little extra more meaningful than if the law was simply extended. The 2025 exemption amount was $13.99 million and, assuming 4% inflation, the increase based on inflation would take the exemption amount to $14.54 million. The legislative increase to a round $15 million in 2026 gives taxpayers an almost $460,000 bump than if the legislation was extended with the current exemption amount.
There are a number of important takeaways from this legislative change. First, the permanency of the exemption amount makes planning easier. Clients and practitioners can make thoughtful decisions relating to wealth transfer planning that is less driven by knee jerk-reactions to potential changes or reductions in exemptions, and more driven by planning that is deliberate and measured.
Second, the permanency of the exemption amount also makes planning harder. The drop in the exemption amount made it easier for planners to motivate clients to proceed with planning that they should have been doing all along. The loss of the external threat of a reduction in the exemption may make it harder for planners to get clients to act.
Third, the law of large numbers, as applied to inflation adjustments will make planning more meaningful. If moderate inflation – say 4% - occurs in 2026, the increase of the exemption from 2026 to 2027 will be $600,000. For some context, in 1992, the entire amount of the estate and gift tax exemption was $600,000 and the total inflation adjustment increase for 2027 will be that amount. A small percentage applied to a large number produces a large number. This will only continue as the exemption grows and inflation continues, even at moderate levels.
Finally, the much larger exemption gives clients the opportunity to “super-size” transactions. For example, in a typical sale to a grantor trust, it is common to use a 10% “seed money” gift. If a married couple can gift a combined $30 million to a grantor trust for their children as the “seed money”, this can translate into a $300 million sale transaction. The opportunity to freeze, leverage, and transfer wealth has never been greater.
Planning strategies including sales to grantor trusts, grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), charitable lead trusts, family limited partnerships, gift trusts for children and grandchildren, and other planning techniques remain viable and valuable tools that clients should continue to consider. For further information on the next tax act or any estate planning considerations, please contact any member of our team.
