The federal estate tax exemption is $15,000,000 per person in 2026, and the One Big Beautiful Bill Act made that level permanent through at least 2026. But something is written into law with a built-in expiry date: the Tax Cuts and Jobs Act of 2017 temporarily doubled the exemption, and that doubling is set to sunset on December 31, 2025. When it does, the exemption reverts to the 2017 base level — adjusted only for inflation — which puts it closer to $7,000,000 per person in 2026 dollars. This article explains why the sunsetting matters now, not in 2026, and what you can do while the higher exemption is still available.
The sunset is already triggered — by statute
The TCJA increased the base estate and gift tax exemption from $5 million (indexed) to $10 million (indexed). Section 11032(b)(2) of the TCJA states that the increased exemption applies for "taxable years beginning after December 31, 2025, and before January 1, 2026." The plain text means the doubled exemption expires after 2025. The Internal Revenue Code then falls back to the pre-TCJA base amount under IRC Section 2010(c), as adjusted for inflation.
Congress has discussed extending the higher exemption, but no extension legislation has been enacted as of October 2026. The statutory cliff is real. If the law remains unchanged, the 2026 estate tax exemption will be roughly $7,000,000 per person (the exact figure depends on the CPI calculation the IRS publishes in late 2025).
What happens if the exemption drops
An estate worth $10,000,000 illustrates the gap:
- At the current $15,000,000 exemption, the taxable estate is $0 — no federal estate tax is owed.
- At a reverted ~$7,000,000 exemption, the taxable estate is $3,000,000, taxed at 40%, producing a federal estate tax bill of $1,200,000.
For married couples, portability can double the exemption, so a surviving spouse might still have a usable exemption above the estate value. But portability requires an election on Form 706 — it does not happen automatically. If the estate is not filed, the portability right is lost forever.
State estate taxes: the sunset hits twice
Even if you never worry about the federal exemption, many states have their own estate taxes with thresholds far below $15 million. A drop in the federal exemption does not change state exemptions, but it does change the unified credit used to offset both federal and (in some states) state estate taxes. Several states "pick up" the federal credit, meaning a lower federal exemption can reduce the state credit too.
States with their own estate tax in 2026 include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia. Check your state's rules separately — the federal sunset does not control them.
Planning moves available before the sunset
The window is narrow. Here are the most common strategies:
- Make annual gifts while the $19,000 (per recipient) exclusion is available. The 2026 gift exclusion is $19,000 per donee. You can gift up to that amount to any number of people without touching your lifetime exemption. If the exemption drops, every dollar gifted during the higher-exemption window is one dollar less exposed to estate tax later.
- Fund a Grantor Retained Annuity Trust (GRAT). A GRAT lets you transfer appreciating assets to beneficiaries while paying little or no gift tax, provided the appraised value at funding equals the annuity payment. GRATs are most useful when asset growth is expected but estate tax exposure is increasing.
- Buy life insurance inside an ILIT. An Irrevocable Life Insurance Trust keeps the death benefit out of your taxable estate. Premiums are gifts to the trust, and the benefit goes to your beneficiaries income-tax-free.
- Revisit your state-domicile planning. If you are considering a move to a no-estate-tax state, document the change early — you want the domicile established before the sunset takes effect.
- File Form 706 portability election even for small estates. If your spouse died after September 2010 and no portability election was made, filing a late Form 706 may still be possible (there is a late-filing grace period in some cases). Portability is free insurance against the exemption drop.
The one thing you cannot do: wait it out
Because the sunset is statutory, waiting for a legislative fix is risky. Congress has extended tax provisions before, but there is no guarantee it will extend the estate tax exemption. The safest approach is to assume the lower exemption is coming and plan accordingly — using the tools above — rather than hoping the law changes again.
Bottom line
The $15,000,000-per-person estate tax exemption is a temporary high-water mark. Unless Congress extends it, the exemption will roughly halve after 2025. Estates over ~$7,000,000 per person become exposed to federal estate tax, and state-level consequences follow. The best time to plan is now, while the higher exemption is still in effect.
Disclaimer: This article is general educational information, not tax, legal, or investment advice. Dollar amounts come from the 2026 sources listed at the end of this article and may change. Before you act, talk to a licensed CPA, EA, or tax attorney about your own situation.