The federal estate and gift tax exclusion is $15 million a person for 2026. The scheduled 2025 drop did not happen. For a business owner, the clock is no longer a sunset. It is the sale.
The January version of this article warned that the exemption would fall by half after 2025. That premise is wrong now. Legislation enacted in July 2025 set the basic exclusion at $15 million for 2026 and indexes it after that. A married couple who elects portability can shelter $30 million. The generation-skipping transfer exemption matches the same $15 million figure. Rev. Proc. 2025-32, IRS: estate and gift tax updates, Internal Revenue Code §2010(c)
A larger exclusion is not a reason to stop planning. A $20 million company plus real estate, retirement accounts, and insurance still crosses the line. More important, the tools that move appreciation out of an estate work best on the asset before it becomes cash. That timing did not change when the sunset died.
What the $15 million number does and does not do
The exclusion is a credit against estate and gift tax, not a pass on filing and not a pass on state income tax. Taxable estates above the exclusion are still taxed at graduated rates, topping out at 40%. Lifetime gifts use the same exclusion. Gifts above the annual exclusion, $19,000 per recipient in 2026, reduce what remains at death. IRS: annual exclusion, Internal Revenue Code §2001
Congress can change the number again. The present statute inflates the $15 million starting in 2027. It does not promise the figure forever. Owners who made large gifts under the 2018 to 2025 exclusion generally keep that use under the anti-clawback rules if the exclusion later falls. New gifts should still be modeled against the owner's remaining applicable exclusion, not against a headline. Treas. Reg. §20.2010-1
Why the sale still sets the clock
Most of the strategies below transfer an interest at today's value and let later growth sit outside the estate. Transfer pre-sale stock when the company is worth $8 million, and a $20 million closing moves $12 million of appreciation to the trust. Transfer the cash after closing and there is nothing left to freeze. The gift-tax cost, if any, is measured on the earlier number.
That is why a signed letter of intent, an auction process, or even a serious inbound offer is a planning event. Waiting for the check is how owners pay estate tax on value they could have moved. The same logic applies to a known recapitalization, a key-person insurance purchase, and a large new real estate position.
Four structures that still earn their keep
Irrevocable life insurance trust (ILIT). Death proceeds on a policy the owner holds are generally in the estate. A policy owned by an ILIT, with the owner holding no incidents of ownership, is generally not. Transferring an existing policy starts a three-year lookback. New policies issued to the trust avoid that clock. Crummey withdrawal rights are how annual-exclusion gifts fund the premiums. Internal Revenue Code §2042, §2035
Grantor retained annuity trust (GRAT). The owner transfers appreciating property, keeps an annuity for a term, and if the property outperforms the IRS Section 7520 rate for the month of the transfer, the excess passes to children or a remainder trust with little or no gift tax. A short, "zeroed-out" GRAT is the usual pre-sale form. If the owner dies during the term, some or all of the trust comes back into the estate. The 7520 rate changes monthly; do not lock a plan to last year's table. Internal Revenue Code §2702
Spousal lifetime access trust (SLAT). One spouse gifts to an irrevocable trust for the other. The assets leave the donor's estate. The beneficiary spouse can still receive distributions. If both spouses create similar trusts, the reciprocal trust doctrine can unwind the plan. Different funding, different trustees, and different beneficial interests are how that risk is managed. Divorce and the death of the beneficiary spouse are the two life events that should be walked through before anyone signs.
Intentionally defective grantor trust (IDGT) and a sale. The trust is ignored for income tax, so the owner pays the tax on trust income, which is a further tax-free gift. For estate tax the assets are out. The usual move is to seed the trust and then sell a business interest for a note. Future appreciation rides outside the estate. The note must be respected: real interest, real payments, real valuation. This is a lawyer-and-appraiser job, not a form.
California conformity
California has no estate, inheritance, or gift tax. The federal plan is not mirrored by a second death tax at the FTB. That does not make California irrelevant. The state taxes trust income when a fiduciary is a California resident or a noncontingent beneficiary is, and California-source income can be taxed even when the trust is administered elsewhere. Moving a trust "to Nevada" on paper does not, by itself, shut that off. California FTB: estates and trusts, Cal. Rev. & Tax. Code §17742
An owner who is leaving California should coordinate the trust move with a genuine change of domicile. An owner who is staying should assume California income tax on trust income that is distributed or that is treated as California-source, and should choose trustees with that cost in view.
What a larger exclusion does not fix
Creditors, a later divorce, a partner lawsuit, and a child's own estate or spendthrift problem are not solved by a $15 million credit. An irrevocable trust can still be the right wrapper when the estate-tax math is no longer the only reason. The same is true for a second marriage and for children from a first marriage who should not be left to a handshake.
Basis is the other trade. Property that stays in the estate generally takes a fair-market-value basis at death. Property given away during life generally keeps the donor's basis. Moving pre-sale stock out of the estate can save a 40% estate tax and cost the heirs a later capital-gains tax on the same appreciation. The model has to show both. Internal Revenue Code §1014, §1015
The decision, in order
Get a current value for the company and the real estate, not a tax-return book number. Map the next sale, recapitalization, or insurance purchase. Decide who should own the growth: a remainder for children, a surviving spouse, or a charity. Then pick the tool that matches the asset and the timeline. A GRAT is a poor fit for an owner who needs the cash. An ILIT is a poor fit if the policy is the only liquidity and the trust cannot pay premiums. An IDGT sale is a poor fit without an appraisal the IRS will respect.
Do this before the letter of intent, not after the wire. The exclusion is larger than it was in January. The sale is still the event that makes the plan cheap or expensive.
This article provides general information, not individualized tax, legal, or investment advice. Figures are for 2026 unless stated and are illustrations, not projections. Trusts require counsel licensed in the relevant states. Results depend on the facts and applicable law.
