2026 brings with it a substantial increase to the federal gift and estate tax exemption that could have a significant impact on your estate plan. Inflation adjustments for the federal gift and estate tax exemption amount and the annual tax exclusion for gifts are calculated annually, and this year's change to the federal gift and estate tax exemption could be an opportunity for affluent individuals and couples interested in tax-efficient wealth-transfer strategies. The inflation adjustment for the annual exclusion for gifts did not meet the necessary threshold this year, and as a result, the exclusion amount will remain at its 2025 level.
| 2025 | 2026 | |
| Federal gift and estate tax applicable exemption amount | $13,990,000 | $15,000,000 |
| Annual exclusion for gifts | $19,000 | $19,000 |
Here are some things you may want to consider.
Small gifts can yield big results
While you may not expect a $38,000 (for married couples) gift to materially impact your wealth-transfer goals, annual exclusion gifting year over year for long periods of time can have a big impact.
Say a couple with 3 children is planning gifts for each child through the end of the couple's life (for example, let's say 20 years). Using 2026's annual gift tax exclusion, they can give away $114,000 ($38,000 to each child, $19,000 from each parent) annually without incurring any gift tax or using any of their federal gift and estate tax exemption.
As an example, if we assume an annual gift of $114,000 at the beginning of each year, this couple will have transferred $2.28 million out of their gross estate after 20 years. Assuming a 7.5% compound annual growth rate on these gifts, that principal amount has the potential for more than $3 million in appreciation (provided the recipients do not spend any of the principal). Assuming a 40% tax rate (applied to assets in excess of the federal estate exemption available at death), gifting the assets annually could save approximately $2 million in federal estate taxes in an estate subject to federal estate tax.
Not all gifts or transfers of assets qualify for the annual gift tax exclusion. Generally speaking, the recipient of the gift needs to have an immediate right to access and use the gifted assets. This requirement becomes an important consideration when gifting assets to an irrevocable trust for the benefit of children, for example. Families should work closely with a qualified estate planning attorney if they are considering making annual exclusion gifts to irrevocable trusts.
An opportunity for greater lifetime gifting
With the rise of the federal estate tax exemption to $15 million in 2026, couples that have utilized all of their lifetime exemption so far could transfer an additional $2.02 million (or $1.01 million per spouse). With the additional $38,000 in annual gifting, the couples could add nearly $2.06 million in additional assets in 2026.
Furthermore, gifting strategies can be combined with IRS-allowed valuation discounts that you may not have considered. For instance, subject to applicable conditions, you can create a family limited partnership (FLP) that manages and invests assets on behalf of your family. Typically, a parent serves as the general partner and creates limited partnership interests for children. By utilizing an annual exclusion gift, the parent can transfer $19,000 of limited partnership interests to each child. The IRS typically allows the value of that interest to be discounted for a lack of control and other factors.
In-kind gifts of marketable securities can be appealing, as well. This is beneficial because a gift is valued at the time the gift is made. Gifting lower-valued securities today means less transfer tax liability for the donor and greater upside potential for the recipient if the securities are expected to appreciate over time. These types of gifts can be a powerful way to remove appreciation on assets from your own estate.
However, capital gains taxes could offset any potential estate and gift tax savings realized when gifting depreciated assets. In most cases, the cost basis of the gifted asset carries over to the recipient. When the recipient ultimately sells the appreciated asset, the recipient's capital gains liability will be based on the original owner's cost basis. It might be more beneficial to not gift the asset during lifetime and instead to transfer the asset upon death, at which point the asset will receive a step-up in basis. It's important to be mindful of choosing the right securities when gifting them to your loved ones.
Consult with a professional
When developing a gifting strategy, especially involving entities like trusts or family limited partnerships, you should keep in mind the importance of working with a tax advisor and filing timely gift tax returns. While such returns will be handled by your CPA or tax attorney, you may also want to consult with an estate planning attorney who can help you explore creative ways to take advantage of strategies that may help you further optimize your plan.
David is responsible for Fidelity's estate and wealth planning activities, including creation of new thought leadership in these areas. He heads a team of professionals that develops and delivers the depth and breadth of Fidelity's wealth planning offering.
Prior to joining Fidelity, David was managing director and head of Insured Solutions for UBS Wealth Management Americas. He served as chief operating officer of UBS Wealth Planning. David first joined UBS as a senior member of UBS Private Wealth Management, and was involved in the creation of that business for the firm. During his tenure with UBS, he also served as the chairman and president of UBS Life Insurance Company USA, Inc.; the chairman and president of UBS Financial Services Insurance Agency, Inc.; and a board member of UBS Trust Company, N.A.
Prior to joining UBS, David was a director in Merrill Lynch's Private Banking & Investment Group. He joined the firm's International Private Banking business in London and was a key member of the firm's Corporate Strategy unit.