Federal Estate Tax Exemption Increases to $15 Million in 2026

What Happened

Starting January 1, 2026, the federal estate tax exemption increases to $15,000,00026 USC 2001(c), 2010; P.L. 119-21 §70106Verified Jan 2, 2026 per person under recent tax legislation. This represents a significant increase from previous levels and creates new planning opportunities for high-net-worth families. The increased exemption means married couples can effectively shelter $30,000,00026 USC 2001(c), 2010; P.L. 119-21 §70106Verified Jan 2, 2026 from federal estate and gift taxes through portability provisions that allow surviving spouses to use their deceased spouse's unused exemption.

The legislation also modifies charitable deduction rules, introducing a 0.5% reduction based on adjusted gross income and limiting taxpayers in the top bracket to deductions calculated at a 35% rate rather than their actual 37% marginal rate. These changes create urgency for high-net-worth individuals to accelerate charitable giving before December 31, 2025, to capture the full 37% deduction benefit.

Additionally, the law makes permanent certain deductions for non-grantor trusts, including state and local tax (SALT) deductions and qualified business income deductions. The SALT deduction for trusts increases to $40,000 and will grow by 1% annually until 2030, when it reverts to $10,000. These provisions create new income tax planning strategies for families using irrevocable trust structures.

What It Means

New York families face a complex planning landscape due to the state's separate estate tax system. While the federal exemption reaches $15,000,00026 USC 2001(c), 2010; P.L. 119-21 §70106Verified Jan 2, 2026, New York maintains its own estate tax with a $7,350,000N.Y. Tax Law §§ 951–971Verified May 31, 2026 exemption and a top rate of 16%N.Y. Tax Law §§ 951–971Verified May 31, 2026. This creates a significant gap where estates valued between the state and federal thresholds face New York estate tax exposure despite being exempt from federal tax.

The increased federal exemption particularly benefits families using credit shelter trusts, also known as bypass trusts. These structures traditionally fund with the federal exemption amount upon the first spouse's death to minimize estate taxes on the surviving spouse. However, families must carefully draft these provisions to consider both federal and state tax implications. If a credit shelter trust funds based solely on the federal exemption amount, it could trigger unnecessary New York estate taxes by exceeding the state's lower threshold.

For New York families with estates approaching or exceeding these thresholds, the enhanced exemption creates opportunities for lifetime gifting strategies. Advanced techniques like formula gifts to irrevocable trusts become more attractive when transferring hard-to-value assets such as closely held business interests or real estate. The higher exemption amounts provide greater protection against gift tax exposure if the IRS challenges asset valuations during an audit. Families can also establish multiple irrevocable non-grantor trusts to maximize available deductions, with each trust claiming its own SALT deduction up to the enhanced limits.

Context from SimplyTrust

Estate planning decisions become more complex when federal and state tax systems diverge significantly. Understanding the differences between trusts and wills helps families choose appropriate structures for their circumstances. While revocable living trusts avoid probate and provide management benefits, they do not reduce estate tax exposure since assets remain in the taxable estate.

Families concerned about estate tax implications should consider consulting with qualified professionals who understand both federal and state requirements. The differences between estate tax and inheritance tax become particularly important when planning across multiple jurisdictions with varying tax structures.

Source: Hughes Hubbard & Reed | Trump Law's Estate Tax Exemption Is a Boon for Wealth Planning