The One Big Beautiful Bill Act sets the federal estate tax basic exclusion at $15 million per individual for decedents dying after 2025. Unlike the prior law, it makes that figure permanent and indexed for inflation. For a married couple, portability still lets the surviving spouse use any unused exclusion of the first to die, so a couple can commonly shield roughly twice that amount. The top federal estate tax rate of 40% applies only to the value above the exclusion.
What The $15 Million Exclusion Actually Does
The exclusion is the amount of a decedent's taxable estate that passes free of federal estate tax. Only the value above the exclusion is taxed, and only at the 40% top rate. The $15 million figure is per individual. It is inflation-indexed from 2026 forward, so it rises in steps rather than staying flat.
What Changed From Prior Law
Before the new law, the elevated exclusion was scheduled to fall back to roughly $7 million per individual at the end of 2025. The new law removes that sunset, so the exclusion does not drop in 2026 or in later years absent further legislation. This is the single most important change for families who had been planning around a 2026 reduction.
The Anti-Clawback Rule Still Applies
The IRS anti-clawback regulation lets a taxpayer lock in the higher exclusion for gifts made while it is in effect, even if the exclusion later falls. Because the exclusion is now permanent, the clawback scenario is less pressing. The rule still protects large lifetime gifts made now against any future reduction.
Who The Estate Tax Now Reaches
With the exclusion at $15 million per individual, the federal estate tax applies to a narrow set of estates. Most real estate investors and professionals are below the threshold. For them, estate planning shifts toward income tax basis, property tax reassessment under Propositions 13 and 19, and orderly succession rather than estate tax avoidance. Estates that are growing toward the threshold still benefit from monitoring and periodic modeling.
Gifting Strategy Under The Higher Exclusion
The higher permanent exclusion gives more room to make lifetime gifts without using it up. Whether to use that room depends on the asset. Appreciated real estate gifted during life carries the donor's low basis forward, which can cost the recipient capital gains tax on a later sale. Holding the asset until death instead steps the basis up to fair market value. The tradeoff is estate tax savings now against income tax cost to the heir later. Model it on the actual asset.
Spousal Lifetime Access Trusts
A SLAT lets one spouse move assets out of their taxable estate into an irrevocable trust for the other spouse. That uses the exclusion while keeping indirect access through the beneficiary spouse. It is still a useful structure for estates that will exceed the exclusion, and for couples who want to remove future appreciation from the estate. It is not free of tradeoffs. Once funded, the trust assets are no longer the grantor's. A SLAT for one spouse usually means the other cannot fund a similar trust without adverse results.
Irrevocable Life Insurance Trusts
An ILIT removes life insurance proceeds from the taxable estate. It can also provide liquidity to pay estate tax or equalize an inheritance among heirs. With the estate tax reaching fewer estates, the tax motivation is weaker. The liquidity and equalization uses remain relevant for business owners and families with illiquid assets.
California Has No Estate Tax
California does not levy a state estate or inheritance tax. The planning focus at the state level is on income tax at distribution and on avoiding property tax reassessment when real estate passes to children. Proposition 19 narrowed the parent-child exclusion for inherited real estate. A transfer that once carried over the parent's low assessed value may now trigger reassessment.
What To Bring To A Conversation
Bring a current statement of net worth, the approximate basis of each major asset, any existing trusts, and the family structure you are planning around. With those, the estate can be modeled against the $15 million exclusion and the basis tradeoffs weighed before any gift is made.