Following recent inflation adjustments, federal estate, gift, and generation-skipping transfer (GST) tax exemptions have soared to a record-high $15 million per person and $30 million per married couple. Even individuals who had previously exhausted their exemptions have now gained another $1,010,000 of exemption per individual, and $2,020,000 per couple.

What goes up, however, can always come down through future legislation.

Estate planning in 2026

Starting January 1, 2026, the amounts that individuals can gift free of federal gift and GST tax rose to $15,000,000 for individuals and $30,000,000 for married couples, as a result of the latest tax bill signed into law on July 4, 2025, formerly known as the One Big Beautiful Bill Act (OBBBA). The federal annual gift tax exclusion remains at $19,000 per person (or $38,000 for married couples who elect to split gifts).

This marks the highest federal transfer‑tax exemption in history, creating an unprecedented opportunity to transfer significant wealth free of federal estate, gift, and GST tax. Yet, at the same time, the broader political landscape remains uncertain. With ongoing volatility in Washington and the possibility that future election results - particularly, a potential shift in congressional control during the midterms - could result in changes to tax policy, it is important to recognize that today’s historically high exemption may not remain in place indefinitely.

With this in mind, individuals who have not already maximized the use of their exemptions may wish to act sooner rather than later. Although there are no longer any “hardwired” sunset provisions in the current legislation, future acts of Congress could reduce the exemptions. Most importantly, there are tremendous potential benefits of implementing strategies now, as they may enable some taxpayers to capture more appreciation and insulate income from future taxation.

This client alert describes some of the more effective estate planning techniques you may consider implementing now. See our related client alert for an overview of the key documents you should have in place, regardless of what happens in Washington.

In Depth

Expanded gifting opportunities

  • In 2026, individuals can transfer $15,000,000 free of estate, gift, and GST tax during their lives or at death; married couples can transfer $30,000,000 during their lives or at death.
  • Individuals who exhausted their gift tax exclusion amount and GST tax exemption prior to 2026 can gift an additional $1,010,000 in 2026 free of gift and GST tax. Similarly, married couples who previously exhausted their exclusion and exemption amounts can gift another $2,020,000 in 2026.
  • Because of the portability provisions made permanent in 2013 by the American Taxpayer Relief Act of 2012, the surviving spouse may use the deceased spouse’s unused federal estate tax exclusion (but not GST tax exemption) for lifetime gifting or at death.
  • The annual per-donee gift tax exclusion amount for 2026 remains at $19,000 per donee (or $38,000 per donee if spouses elect to split gifts). This amount is subject to indexing in future years. Gifts in any amount for tuition or medical expenses (including health insurance) paid directly to the educational institution, medical provider, or insurance company continue to remain exempt from gift tax.

At this time, individuals who have not already secured the full use of their exemptions should consider establishing a trust or adding to existing trusts and funding them with assets which they currently feel comfortable gifting.

Special considerations for New York, New Jersey, and Connecticut residents

New York residents

For New Yorkers, market volatility, depressed values for certain asset classes (e.g., commercial real estate) and soaring inflation-related federal exclusion amounts all enhance powerful gifting and other leveraged-transfer opportunities in 2026. Explore our related article to learn how the expanded amounts give New Yorkers a greater opportunity to plan to permanently reduce their New York taxable estates and avoid the New York estate tax cliff.

New Jersey residents

New Jersey has neither a gift tax nor an estate tax. It does, however, have an inheritance tax that applies to property passing at a decedent’s death and to gifts made within three years of death to persons other than the decedent’s spouse, parents, children, or more remote descendants. The tax is imposed at rates as high as 16%. New Jersey residents who want to benefit other family members should consider making lifetime gifts to those individuals or to trusts for their benefit using the temporarily high exclusion amounts to protect their gifts from federal estate tax and New Jersey inheritance tax.

Connecticut residents

Connecticut is the only state that imposes a gift tax. Until the end of 2022, the Connecticut exclusion amount was well below the federal exclusion amount. As a result, Connecticut residents who utilized their entire federal exclusion amount incurred a substantial Connecticut gift tax. As of January 1, 2023, this is no longer an issue, since the Connecticut exclusion matches the federal exclusion.

The increase presents a valuable opportunity for Connecticut residents who previously capped their gifts well below the federal exclusion amount in order to avoid the Connecticut gift tax.

Popular wealth-transfer techniques

Here are some planning techniques to consider:

  • Topping off prior planning by making additional gifts to existing or new family trusts to shift future appreciation out of the estate.
    • For example, if you made a $10 million gift to a trust last year and simply invested the funds in the S&P 500, the $10 million would have increased to roughly $11.7 million, resulting in $1.7 million growing outside of your future taxable estate in just 12 months. In addition, if you made a gift of a minority interest in an operating business or closely held investment, valuation discounts in the range of approximately 25% to 35% can be applied to the net asset value of the entity with a qualified appraisal. For example, if the net asset value of the business is $50 million, then, on a minority interest basis, the value of the gift for gift-tax purposes could be reduced based on a $32.5 million value rather than a $50 million value. A gift of a 45% interest in the business would be valued at approximately $14,625,000 (after the discounts) and would be below the donor’s $15,000,000 gift exemption, leveraging the use of the exemption.
    • If the gift is made to an intentionally defective grantor trust (discussed below), then the grantor is responsible for paying the income taxes generated by the trust assets, allowing the trust assets to essentially grow tax free. Shifting the tax burden to the grantor reduces the grantor’s future taxable estate without using additional gift exemption and without being subject to gift tax. The benefits of the grantor paying the income taxes can be exponentially effective, particularly over a long time horizon, if the gifts are made to a dynasty trust (which trusts are free from estate, gift, and GST taxes for multiple generations).
  • Gifting residences or other assets to existing or new trusts that include spouses as discretionary beneficiaries, commonly referred to as spousal lifetime access trusts (SLATs).
  • Funding grantor-retained annuity trusts (GRATs) to take advantage of current stock-market volatility, depressed valuations for various asset classes, and/or valuation discounts in valuing closely held business interests.
  • Selling assets to grantor trusts or, where appropriate, making cash gifts to facilitate the prepayment of existing loans from senior family members.
  • Making new intrafamily loans, particularly if interest rates decline.
  • Allocating increased GST tax exemption to existing family trusts that are not exempt from GST tax.
  • Securing the use of younger family members’ exclusion amounts and exemptions with gifting to family trusts for siblings and future descendants.

Additional detail on these popular techniques is provided below.

Dynasty (generation-skipping) trusts

Through coordinated use of the federal gift exclusion and GST tax exemption, a taxpayer may create trusts with an aggregate value of up to $15,000,000 ($30,000,000 per married couple) with no gift or GST tax. These trusts may benefit several generations of descendants while insulating the assets from gift, estate, and GST taxes. Transfer tax-protected multigeneration trusts are sometimes referred to as “dynasty trusts,” particularly if they are situated in jurisdictions such as Delaware and New Jersey that permit trusts to last indefinitely.

The creator of a dynasty trust allocates GST tax exemption to the trust and funds it with assets likely to appreciate. Those assets and all post-funding income and appreciation are removed from the taxable estate of the creator of the trust and would not be included in the estate of his or her children and grandchildren, allowing the trust to grow free of transfer taxes for multiple generations. In addition to mitigating the impact of transfer taxes, a dynasty trust can help shield a family’s assets from creditors, claims in the event of divorce, and poor decisions of future beneficiaries.

Spousal lifetime access trusts (SLATs)

Trusts, including dynasty trusts, may be structured to give your spouse, as well as your children and more remote descendants, access to the trust as discretionary beneficiaries. SLATs appeal to individuals who want the comfort of knowing that transferred wealth could still be available for family needs through distributions to the spouse. The trust assets can serve as a “rainy day fund” while allowing the grantor to take maximum advantage of the current levels of exclusion and exemption.

It is possible for each spouse to create a trust that includes the other as a beneficiary. So long as the two trusts are not interrelated, and do not leave each spouse in approximately the same economic position in which either would have been had they named themselves as a beneficiary of the trust they created, neither trust should be included in either spouse’s taxable estate. One way of satisfying this test is to create the trusts at different times (preferably in different years) and to provide each spouse with different types of beneficial interests.

Grantor-retained annuity trusts(s)

Grantor-retained annuity trusts are a popular technique that can be used to transfer a portion of the appreciation on assets to family members without the imposition of any gift or estate tax (assuming the grantor survives the initial term, which can be as short as two years). GRATs are particularly useful in a time of extreme market turbulence. Turbulence creates an opportunity to fund a GRAT when there is a downswing in values that is expected to be temporary. GRATs are also particularly attractive gifting vehicles for hard-to-value assets.

The grantor of a GRAT transfers assets to a trust while retaining the right to receive a fixed annuity for a specified term. The retained annuity is paid with any cash on hand, or, if there is no cash, with in-kind distributions of assets held in the trust. At the end of the term, the remaining trust assets pass to the ultimate beneficiaries of the GRAT (for example, a trust for the benefit of the grantor’s spouse and children), free of any estate or gift tax.

Some of the key features of a GRAT include the following:

  • GRATs are structured so that the transfers they receive produce little or no taxable gifts. A GRAT that provides its grantor with an annuity stream equal to the value of the property transferred to it is known as a “zeroed-out” GRAT. A grantor’s gift to a zeroed-out GRAT is not subject to any gift tax.
  • Grantors can fund GRATs with any type of property, such as interests in closely held businesses; venture, hedge and private equity funds; and marketable securities. The best assets to transfer to GRATs are those that are likely to appreciate during the GRAT term at a rate that exceeds the IRS hurdle rate (an interest rate published by the IRS every month). The rate in March 2026 is 4.8%. The value of the grantor’s retained annuity is calculated based on the IRS hurdle rate.
  • The grantor of a GRAT runs no gift tax risk if he or she undervalues the transferred assets. If an asset for which there is no readily ascertainable market value is transferred to a GRAT and the IRS later challenges the value reported for gift tax purposes, the GRAT annuity automatically increases to produce a near-zero gift.
  • The downside of planning with GRATs is the difficulty of protecting the value of the assets that move to trusts for family members at the end of the annuity term from the GST tax.

Younger generation planning

The younger members of wealthy families should consider using their exclusions and exemptions by creating trusts for the benefit of their unborn descendants and other family members. Senior generations can also be included as discretionary beneficiaries if warranted.

If a young family member lacks funds to use to make gifts, the trustees of non-GST tax-protected trusts held for their benefit (such as a follow-on trust for a GRAT) could consider making distributions to them to enable them to make gifts. The assets in such non-GST tax-exempt trusts would be subject to GST tax if the assets remain in the trust when the younger family member dies, so distributing property from such trust does not forego a preserved tax benefit.

Income tax considerations

GRATs and SLATs enjoy an income tax advantage that further enhances their appeal. GRATs and SLATs are both grantor trusts. Dynasty trusts can also be structured to be grantor trusts. When a trust is a grantor trust, its assets are treated as owned by the grantor and the grantor must pick up all items of income, credit, and deduction attributable to the trust on the grantor’s personal income tax return. Because the trust’s grantor pays income tax on all trust income, the trust property will be able to grow free of income tax. Under current law, the payment by the grantor of the income tax on income earned by his or her grantor trust is not considered a taxable gift.

Because the grantor of a grantor trust is treated as owning the trust’s assets, transactions between the trust and its grantor are ignored for income tax purposes. This permits the grantor to exchange assets owned by the grantor with assets of equal value owned by the trust. Exchanges can be a very valuable technique for income tax basis planning. If, for example, a grantor trust owns an asset worth $10 million with a tax basis of $5 million, the grantor could acquire that asset from the trust in exchange for $10 million. No tax would be imposed on the sale and the built-in income tax gain at the trust level is eliminated. If the grantor retains that asset until death, under the current tax law the asset will receive a new tax basis equal to its value on the date of the grantor’s death.

The grantor can rent an asset that he or she transferred to a grantor trust, provided that the rent is a fair-market rent. Paying rent enhances the effectiveness of the gift because the rent will shift additional wealth out of the estate. The rent payment to the trust is not taxable income to the trust because the transaction is disregarded for income tax purposes, even if the rent payments are substantial.

Intrafamily loans

The IRS publishes interest rate tables each month that establish the lowest rate that, if properly documented, can be safely used by you for loans to family members without producing taxable gifts. The growth rate of your funds that are lent to children, or to trusts for their benefit, will be limited to that interest rate. Those funds, in turn, can be used by the junior family members to be invested in a manner that hopefully will achieve a rate of return in excess of the interest rate charged on the loans.

Making a loan to a trust for your children may be even more advantageous than making a loan outright if the borrowing trust is a grantor trust for income tax purposes. Ordinarily, the interest payments on a note must be included in the taxable income of the lender, but if the payments are made by a grantor trust, they will be free of income tax, because it is considered a payment from the grantor to himself or herself for income tax purposes.

In March 2026, the applicable federal rate for mid-term loans (between three- and nine-year terms) is 3.93%, and the applicable federal rate for long term loans (more than nine years) is 4.72%.

Alternatively, it may be more advantageous for senior family members to put some of their expanded federal gift exclusions and GST tax exemptions to work by making cash gifts to facilitate the prepayment of existing loans to family members and to trusts established for the benefit of family members.

Sales to grantor trusts

A sale to a grantor trust for cash or a note can be an extremely effective planning strategy. In the case of a sale of a minority interest in an entity or a fractional interest in real property, valuation discounts can apply to limit the amount of purchase price necessary to avoid a taxable gift. As is the case with gifts, the income and appreciation generated by the sold property after the sale will be protected from future estate taxes. If you don’t already have a grantor trust in existence, consider using your current gift tax exclusion to create one.

A grantor trust provides you with two independent planning opportunities. First, as discussed above, you will pay the income tax on the income generated by the trust, including tax on capital gains, thereby allowing the trust to grow tax-free while reducing your future estate taxes. In addition, you may engage in transactions with your grantor trust without any income tax consequences.

If you have previously exhausted your exclusion and exemption amounts through prior gifting to grantor trusts, you may want to leverage the value of your prior gifts through new sales to grantor trusts or, where appropriate, by making cash gifts to facilitate the prepayment of existing installment obligations owed to you by your grantor trusts from prior sales.

Summary

The current lifetime gift tax exclusion and GST exemption offers an opportunity to leverage gifting and preserve wealth for multiple generations. Thoughtful planning and careful implementation are essential to a successful estate plan that preserves wealth in the most tax-efficient manner and fulfills the family’s personal objectives.