Historically speaking, the federal estate tax is an excise tax levied on the transfer of a person’s assets after death. In actuality, it is neither a death tax nor an inheritance tax, but more accurately a transfer tax. There are three distinct aspects of federal wealth transfer taxes that comprise the Unified Transfer Tax: Estate Taxes, Gift Taxes, and Generation-Skipping Transfer Taxes. Legal planning to avoid or minimize these transfer taxes is both prudent and important in comprehensive estate planning.
The most recent iteration of the federal estate, gift, and generation-skipping transfer tax was signed into law by President Trump on July 4, 2025, as part of the One Big Beautiful Bill Act (OBBBA). There are a few things you ought to know about this law, which took effect on January 1, 2026. Specifically, you should know the “numbers” governing transfers subject to estate, gift, and generation-skipping transfer taxation.
A $5 million inflation-indexed exemption was signed into law on December 17, 2010, under the Tax Relief, Unemployment Insurance Authorization, and Job Creation Act of 2010 (TRA 2010). By 2017, the federal estate tax exemption had risen to $5.49 million per individual due to the inflation feature (and a nearly “automatic”* $10.98 million for married couples who follow very specific requirements at the death of the first spouse). With the stroke of his pen on December 22, 2017, President Donald Trump doubled this exemption. Under the OBBBA for 2026, the exemption is $15 million per individual and $30 million for married couples. The tax rate on amounts above the exemption limit remains 40%.
*See “Portability” below for more on this.
The OBBBA continues the concept of a unified exemption that ties together the gift tax and the estate tax. This means that, to the extent you utilize your lifetime gift tax exemption while living, your federal estate tax exemption at death will be reduced accordingly. Your unified lifetime gift and estate tax exemption in 2017 was $5.49 million and is now the same as the federal estate tax exemption of $15 million per individual and $30 million for married couples. Likewise, the top tax rate is 40%. Note: Gifts made within your annual gift exclusion amount do not count against your unified lifetime gift and estate tax exemption.
So, what is the annual gift exclusion amount?
The annual gift exclusion for 2026 is $19,000. Married couples can combine their annual gift exclusion amounts to make tax-exempt gifts totaling $38,000 to as many individuals as they choose each year, whether both spouses contribute equally, or if the entire gift comes from one spouse. In the latter instance, the couple must file an IRS Form 709 Gift Tax return and elect “gift-splitting” for the tax year in which such gift was made.
So, what is this GSTT? Essentially, it is a transfer tax on property passing from one generation to another, which is two or more generational levels below the transferring generation. For instance, a transfer from a grandparent to a grandchild or from an individual to another unrelated individual who is more than 37.5 years younger than the transferor.
When done properly, this can transfer significant wealth between generations.
The amount that can escape federal estate taxation between generations, otherwise known as the Generation-Skipping Transfer Tax Exemption (GSTT) is unified with the federal estate tax exemption and the lifetime gift tax exemption at $15 million per individual and $30 million for married couples, subject to certain specific requirements. As with estate and gift taxes, the top GSTT tax rate is 40%.
The American Taxpayer Relief Act of 2012 (ATRA 2012), made “permanent” a new concept in estate planning for married couples, ostensibly rendering traditional estate tax planning unnecessary. This concept, called “portability,” means that a surviving spouse can inherit the deceased spouse's estate tax exemption without using “A-B Trust” planning. As with most tax laws, however, the devil is in the details. For example, unless the surviving spouse files a timely Form 709 Estate Tax Return (within nine months of death) and complies with other requirements, portability may be unavailable.
In addition, married couples will not be able to use the GSTT exemptions of both spouses if they elect to use “portability” as the means to secure their respective estate tax exemptions. Furthermore, reliance on “portability” in the context of blended families may lead to unintended disinheritance and other adverse consequences.
If you are concerned about how your current estate and gift planning may be affected by ATRA 2012 and thereafter, we encourage you to schedule a consultation.
KS/MO’s estate tax system is commonly referred to as a “pick up” tax. This is because KS/MO claims all or part of the credit for state death taxes allowed on the federal estate tax return (Form 706 or 706NA). Since there is no longer a federal credit for state estate taxes on the federal estate tax return, there is no longer any basis for the KS/MO estate tax. KS/MO has neither an estate tax – a tax paid by the estate, nor an inheritance tax – a tax paid by a recipient of a gift from an estate.
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