Significant changes were recently made to the federal estate tax, and the amount of money a person can gift or bequeath without owing an estate tax.

When you die, your assets become the property of your estate. Everything you own or have a financial interest in is considered part of your estate. If the value of your gross estate exceeds a certain amount, then the executor of your estate must file a federal estate tax return (Form 706). A filing must be made even if no taxes are owed. The amount of tax that is owed is based on the value of your taxable estate. In 2025, if your taxable estate exceeds $13.61 million, your estate will pay a tax of 40% on the excess.

Who Pays the Federal Estate Tax?

Relatively few people pay estate taxes. According to the Congregational Budget Office (CBO), of the 2.7 million people who died in 2016 (the most recent year for which complete data were available when this analysis was done), only about 5,500 had estates that were taxable. That is about 0.2 percent of all estates in that year. Estate and gift tax revenues in 2020 totaled $17.6 billion, which was 0.5 percent of total receipts and 0.1 percent of GDP. Since 1980, combined estate and gift tax revenues have varied from close to zero as a share of GDP (or $7 billion) in 2011 to 0.3 percent of GDP (or $28 billion) in 1999. The CBO estimates that from about 2021 to 2025, revenue from the estate and gift tax totaled around $20-25 billion per year. Up until about a week ago, revenues were projected to double over the next 6 years.

What is the Basic Exclusion Amount?

Estate taxes are only owed if the value of your gross estate exceeds a certain amount, known as the Basic Exclusion Amount (BEA) under 26 USCS § 2010. The BEA is the threshold amount of a decedent’s estate that is exempt from federal estate tax. If the total value of a person’s taxable estate at death is less than or equal to the BEA, no federal estate tax is owed. If the taxable estate exceeds the BEA, only the amount over the threshold is taxed at 40%.

For decedents dying in 2025, the BEA is $13.61 million per person. For married couples, through portability, the exclusion can effectively be doubled to $27.22 million, if the surviving spouse elects to use the unused exclusion of the deceased spouse by timely filing Form 706.

For example, suppose someone dies in 2025 with a gross estate worth $20 million:

• BEA applied: $20M – $13.61M = $6.39M taxable estate
• Federal estate tax rate: Top rate is 40%
• Estimated tax owed: 40% of $6.39M = $2.556M

The BEA is indexed for inflation annually.

The Tax Cuts and Jobs Act (TCJA) was signed into law by President Donald Trump on December 22, 2017, officially becoming Public Law 115‑97. It took effect on January 1, 2018. The TCJA temporarily doubled the BEA, though this increase was set to sunset after 2025. If Congress didn’t act, the BEA would have reverted to about $6.4 million per person starting January 1, 2026.

How does the new law impact the federal estate tax?

On July 4, 2025, President Donald Trump signed new federal legislation into law that impacts the BEA.

Basically, the BEA was changed from $5,000,000 to $15,000,000 indexed for inflation. This change is effective for estates as of January 1, 2026. This means that instead of the BEA going from $13.61 million per person to about $6.4 million per person (which would have happened under the prior law), the BEA is actually rising next year from $13.61 million to $15 million! And again, this $15 million BEA is indexed for inflation so it will continue to rise year by year.

This means that more estates will be exempt from federal estate taxes, and fewer people will need to plan for federal estate taxes.

The BEA is shared between lifetime gifts and transfers made at death. For example, if you gift $5,000,000 to your children in 2025 above the annual exclusion amount, your lifetime BEA will be reduced by this amount. In round numbers, this means that your BEA is now reduced from $13.61 million to $8.61 million were you to die later this year. This means that you will have less credits at death to offset your taxable estate. This is often known as the unified credit because it applies to both lifetime gifts, and transfers at death.

If you used up your $13.61 million BEA in 2025, you will get an additional $1.39 million to use beginning January 1, 2026. And unlike the TCJA, this tax cut is permanent with no expiration date or reversion date. Under this new law, the BEA will continue to rise year by year, indexed for inflation.

Conclusion

For wealthy families, new opportunities exist for transferring wealth tax free to the next generation. For more information on how this new law might affect your estate planning, contact us today.