2026 Federal Estate Tax Exemption Limits

Harvey just received devastating news: the codicil he signed last year, attempting to disinherit his son, was deemed invalid. A misplaced signature, a missing witness date – seemingly minor errors – now mean his estate will be divided according to pre-codicil instructions, effectively cutting out the child he intended to exclude. The resulting family conflict and legal fees are exceeding $50,000, all because of a technicality.

What are the current federal estate tax exemption limits, and what can I expect for 2026?

The federal estate tax is a significant concern for high-net-worth individuals, but the applicable exemption amount changes periodically. For 2024, the federal estate tax exemption is $13.61 million per individual. This means an estate must exceed this value before federal estate taxes are due. However, this is a temporary rule; it’s set to revert to a significantly lower amount on January 1, 2026.

Currently, the scheduled exemption for 2026 is $7.04 million per individual, adjusted for inflation. While the final amount for 2026 isn’t yet finalized, projections indicate it will likely be around $7.1 to $7.3 million. This represents a dramatic decrease, potentially bringing many more estates into the taxable estate category. It’s crucial to understand that these exemption amounts are per individual; a married couple can effectively double this amount through portability. Portability allows a surviving spouse to use the unused portion of their deceased spouse’s exemption. However, a specific election must be filed with the IRS to claim portability.

How does the step-up in basis affect estate tax planning?

As a CPA as well as an estate planning attorney with over 35 years of experience, I frequently emphasize the power of the step-up in basis. This is a critical, often overlooked aspect of estate planning that can significantly reduce capital gains taxes. When you inherit assets, their cost basis is “stepped up” to their fair market value on the date of the decedent’s death. This means any appreciation that occurred during the decedent’s lifetime is not subject to capital gains tax when the beneficiary eventually sells the asset.

For example, if Harvey had held stock worth $100,000 when he died, and the stock is now worth $200,000, the beneficiary will only pay capital gains tax on the increase in value after the date of death. Without the step-up in basis, the entire $100,000 appreciation would be taxable. Strategic estate planning can maximize this benefit, particularly with appreciating assets like real estate or stocks. Proper valuation at the date of death is essential to substantiate the stepped-up basis, and this is where my CPA expertise proves invaluable.

What happens if my estate exceeds the exemption amount?

If your estate exceeds the applicable exemption amount, the excess is subject to federal estate tax. The current federal estate tax rate is 40%, but it’s applied to the taxable estate in a progressive manner. This means not everything above the exemption is taxed at 40%; the initial portions are taxed at lower rates.

However, remember that if a Will is invalidated, assets fall under intestacy; however, for deaths on or after April 1, 2025, estates with personal property under $208,850 (per CPC § 13100) may still bypass full probate via affidavit. This provides a streamlined process for smaller estates. Furthermore, state estate taxes also exist in some states, like California, and these are separate from the federal estate tax. It’s essential to consider both when planning.

What role do trusts play in estate tax planning?

Irrevocable trusts are powerful tools for reducing estate tax liability. By transferring assets into an irrevocable trust, you effectively remove them from your taxable estate. The trust owns the assets, not you, so they are not included in the calculation of your estate tax. There are various types of irrevocable trusts, each designed for specific purposes. Grantor Retained Annuity Trusts (GRATs) and Irrevocable Life Insurance Trusts (ILITs) are commonly used to minimize estate tax. However, it’s critical to understand that once assets are transferred into an irrevocable trust, you generally lose control over them.

What are the risks of using beneficiary witnesses, and how can I avoid them?

California Probate Code § 6112 states that an ‘interested witness’ (a beneficiary) triggers a legal presumption of duress or fraud. Unless there are two other disinterested witnesses, the beneficiary may lose their gift, taking only what they would have received under intestacy rules.

Choosing beneficiaries as witnesses to your Will can invalidate the entire document. This creates a legal presumption of undue influence or fraud, potentially leading to a costly probate battle. To avoid this, always select disinterested witnesses – individuals who will not benefit from your Will. Ideally, these witnesses should be individuals who are unlikely to be challenged or suspected of wrongdoing.

What if there are minor errors in the execution of my Will?

Probate Code § 6110(c)(2) states that the court may validate a signature-defective Will if there is ‘clear and convincing evidence’ of the testator’s intent; however, this requires a costly court petition and is not a guaranteed safety net.

While California courts are somewhat forgiving of minor technical errors in Will execution, errors can still lead to significant legal battles. A misplaced signature, an undated document, or an improperly acknowledged Will can all be grounds for invalidation. To minimize this risk, it’s vital to ensure the Will is executed strictly in accordance with California law. This includes the testator signing the Will in the presence of two disinterested witnesses, who must also sign the document simultaneously. While California allowed temporary remote witnessing during the pandemic, the law (CPC § 6110) has reverted to requiring strict simultaneous presence; remote signatures are generally invalid for Wills unless they meet the narrow ‘Electronic Will’ standards of AB 298.

What about digital assets and access to online accounts?

Effective 2025, California law (CPC § 871) was expanded to grant fiduciaries power over digital accounts; however, you must still grant explicit RUFADAA powers in your Will or Trust to bypass federal privacy blocks.

Digital assets – online accounts, social media profiles, cryptocurrencies – are increasingly significant parts of our estates. It’s crucial to address these assets in your estate plan. California has adopted the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA 2.0, SB 1458), which grants fiduciaries (trustees and executors) access to digital assets. However, you must specifically grant your fiduciaries these powers in your Will or Trust to bypass privacy protections imposed by federal laws like the Stored Communications Act.

Finally, including a self-proving affidavit allows the Will to be admitted to probate without the testimony of the subscribing witnesses, significantly accelerating the court’s approval process (Probate Code § 8220).

How do California courts decide whether a will reflects true intent or creates ambiguity?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

To ensure the will functions as intended, the executor must understand their fiduciary obligations, while the family should be prepared for the court supervision required to enforce the document.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Resources for Legal Standards & Probate Procedure

• Riverside Local Rules: Riverside Superior Court – Probate Division
  Access the essential “Local Rules” (Title 7) effective January 1, 2026. This includes mandatory usage of the eSubmit Document Submission Portal, current Probate Examiner notes, and specific requirements for remote appearances via the court’s designated platform.
• Attorney Verification: State Bar of California
  The official regulatory body for California attorneys. Use this to verify a lawyer’s “Certified Specialist” status in Estate Planning or to access 2026 guidelines on the ethical handling of Client Trust Accounts (IOLTA).
• Self-Help & Forms: California Courts – Wills, Estates, and Probate
  The Judicial Council’s official portal. It includes the updated 2026 forms for the $208,850 personal property threshold and the $750,000 “Primary Residence” simplified transfer procedure (AB 2016).
• Federal Estate Tax Exemption: IRS Estate Tax Guidelines
  The authoritative federal resource for estate and gift tax filing. It reflects the permanent exemption of $15 million per individual (effective Jan 1, 2026), replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.