Estate planning strategies to reduce estate taxes look different than they did a decade ago. With the federal estate tax exemption now a permanent $15 million per person, most families don’t actually have an estate tax problem anymore. The bigger risk today is usually income tax and losing the step-up in basis, not the estate tax itself.
The Exemption That Changed the Math
For 2026, the federal estate and gift tax exemption is $15 million per person, or $30 million for a married couple, and it’s now permanent rather than scheduled to expire or shrink. That’s a dramatically higher bar than the exemption levels many families planned around even five years ago.
Did You Know? Before this level became permanent, the exemption was scheduled to drop by roughly half at the end of 2025 under prior law, which drove a wave of aggressive gifting and trust planning. Much of that urgency no longer applies to families below the new, much higher threshold.
If your combined estate is well under $30 million, the federal estate tax likely isn’t your biggest planning risk anymore.
The Contrarian Shift: Income Tax and Basis Step-Up Now Matter More
Here’s the piece that surprises a lot of clients. For most families now, the more important number isn’t the estate tax exemption, it’s the step-up in basis at death.
When you inherit an asset, its cost basis typically resets to its value on the date of death. That erases any capital gains that built up during the original owner’s lifetime. Aggressive lifetime gifting strategies, designed for decades to dodge an estate tax that applied at much lower thresholds, can actually backfire now by giving away that basis step-up unnecessarily and creating a bigger income tax bill for heirs down the road.
Pro Tip: Before doing large lifetime gifts purely to reduce a taxable estate, check whether your estate is even likely to owe federal estate tax at the $15 million per person threshold. If not, holding appreciated assets until death to preserve the basis step-up is often the better move.
When Estate Tax Planning Still Matters
Estate tax planning remains important for families above, or approaching, the exemption threshold, and for a few specific situations regardless of size.
- Estates near or above $15 million per person ($30 million per couple) still benefit from trusts, gifting strategies, and valuation discounts to reduce exposure to the 40% top federal estate tax rate.
- Business owners with an illiquid, hard-to-value business interest often need estate liquidity planning, life insurance or buy-sell funding, regardless of total estate size, so heirs aren’t forced to sell the business to pay taxes.
- Residents of states with their own estate or inheritance tax need to plan around state-level thresholds, which are often far lower than the federal exemption. Ohio repealed its estate tax back in 2013 and has no inheritance tax, but that’s not true everywhere, so it’s worth checking your own state’s rules separately from the federal number.
The Annual Gift Exclusion Still Has a Role
Even for families who no longer need aggressive estate tax avoidance, the annual gift exclusion remains a useful, low-friction tool. For 2026, you can give up to $19,000 per recipient ($38,000 for a married couple splitting gifts) without touching your lifetime exemption or filing a gift tax return. Gifts to a non-citizen spouse have a much higher annual exclusion, $194,000 for 2026.
This works well for helping family members with education costs, home down payments, or simply transferring wealth gradually while you’re alive to see the benefit.
Portability: A Tool Many Married Couples Overlook
Married couples have an additional tool that reduces the need for complex trust planning purely to preserve exemption: portability. If one spouse dies and doesn’t use their full $15 million exemption, the unused portion can transfer to the surviving spouse, as long as an estate tax return is filed to elect portability, even if no tax is owed.
This means a couple doesn’t necessarily need a complicated trust structure just to make sure both exemptions get used. Filing that portability election, though, is not automatic. It requires a timely estate tax return after the first spouse’s death, something many families miss entirely because no tax was due and no one realized a filing was still worthwhile.
Pro Tip: File a portability election after the first spouse’s death even when no estate tax is owed. It costs relatively little to file and preserves flexibility for the surviving spouse’s estate, especially if asset values grow substantially before the second death.
Trusts Still Serve Purposes Beyond Tax
Even without a large estate tax bill to avoid, trusts remain valuable for reasons that have nothing to do with taxes.
Did You Know? A revocable living trust can help your estate avoid probate entirely, keeping the process private and often faster for your heirs, regardless of whether any estate tax is owed.
Trusts also allow you to control how and when heirs receive assets, protect assets from a beneficiary’s creditors or a divorce, and provide for a beneficiary with special needs without disqualifying them from government benefits. These purposes apply just as much to a $3 million estate as a $30 million one.
Building the Right Plan for Your Actual Number
The right estate planning strategy depends entirely on where your estate actually falls relative to the $15 million per person threshold, not on assumptions carried over from when the exemption was much lower.
John Shedenhelm works with clients to map their actual estate value against current exemption levels before recommending gifting or trust strategies, coordinating closely with wealth transfer planning and estate attorneys through trust and estate planning services at Eagle Financial Solutions.
If your estate planning was built around old assumptions about a shrinking exemption, it’s worth revisiting now that the threshold is permanent and much higher. Schedule a review with Eagle Financial Solutions to see where your plan actually stands.
FAQ
What is the 2026 federal estate tax exemption? The 2026 federal estate and gift tax exemption is $15 million per person, or $30 million for a married couple, and it is now permanent rather than scheduled to decrease. Estates below this threshold generally owe no federal estate tax.
How can I reduce taxes on my estate? For most families now under the $15 million per person threshold, the priority has shifted from avoiding estate tax to preserving the step-up in basis at death. For larger estates, trusts, lifetime gifting, and valuation discounts still reduce estate tax exposure.
Does Ohio have an estate tax or inheritance tax? No. Ohio repealed its estate tax in 2013 and has no state inheritance tax. Ohio residents’ estates are subject only to the federal estate tax, which now applies only above $15 million per person.
What is the annual gift tax exclusion for 2026? The annual gift tax exclusion for 2026 is $19,000 per recipient, or $38,000 for a married couple splitting gifts. Gifts up to that amount don’t count against your lifetime estate and gift tax exemption.
