The 2026 Estate Tax Sunset: “Use It or Lose It” Planning

The One Big Beautiful Bill Act (OBBBA), passed on July 4, 2025, reverses the Tax Cuts and Jobs Act (TCJA) sunset. Estate planning and coordination with CPAs is still essential, but the framework families plan within has changed. Here’s how to prepare for 2026 and beyond.

TCJA Sunset 2026

Under the TCJA, the federal estate and gift tax exemption was temporarily doubled to $10 million, adjusted for inflation. (As of 2025, it stands at $13.99 million per person.)

However, that boosted exemption was scheduled to expire on December 31, 2025, causing an exemption drop back to $5 million per person adjusted for inflation. This rollback created a “use it or lose it” urgency for many families, who turned to more aggressive lifetime gifting and trust strategies.

OBBBA in 2026

Starting January 1, 2026, OBBBA raises the estate, gift, and generation-skipping transfer tax exemption to $15 million per person. Unlike the TCJA, there is no sunset provision and beginning in 2027, the exemption amount will be adjusted for inflation to help with rising costs.

Some aspects of the federal tax system stay the same, however:

The highest federal estate tax rate is still 40%.
Portability basics still require tax return filing, even if the estate is under the filing threshold.
Married couples can still elect to “split” gifts.
The annual exclusion gift amount remains $19K per person.
Basis step-up rules for appreciated assets are the same.
Families can still use valuation discounts and explore GRAT/SLAT/ILIT concepts.

Smart moves before the deadline

With the exemption changes fast approaching, California families can still take meaningful steps to strengthen their estate plan. The most effective strategies include asset transfers, property funding, and maintaining clear documentation throughout planning.

Your gifting strategy

A thoughtful gifting strategy can shift growth out of your taxable estate while keeping transfers simple. Donor-advised funds, charitable remainder trusts, and direct gifts to cherished organizations can reduce estate tax exposure while supporting your philanthropic goals.

Separate vs community property funding

Community property receives a full step-up in basis tax benefit when the first spouse dies. This adjusts the tax basis of the entire asset (both halves) to the current market value, which can significantly reduce or eliminate the capital gains tax if the asset is later sold.

To maintain the community property classification and secure the full step-up in basis, a joint revocable living trust is typically used.

Separate property, by contrast, is often funded into an individual trust. The owner spouse can retain 100% control over distributions and claim the full federal tax exclusion while leaving the CP untouched.

Spousal Lifetime Access Trust (SLAT) cautions

SLATs remain a popular tool, but California’s community-property framework adds complications. Funding a SLAT with community property may undermine the trust’s structure, so careful tracing and documentation are important. Couples also need to weigh SLAT cautions such as reciprocal-trust risks, long-term access limits, and how separate property is established before funding.

Keep flexibility, reduce risk

Even with the tax exemption relief of OBBBA, estate planning is more important than ever. Tax laws change, asset values fluctuate, and family needs evolve. Building strategies that can adapt over time helps protect both your estate and your loved ones.

Strategies such as powers of appointment, disclaimer planning, and trust protectors add flexibility and guardrails, while attention to liquidity for taxes reduces the financial strain on the estate.

Are you ready for 2026? Estate planning can be complex. An expert who understands how multiple areas of tax law interact can help you make the right decisions. If you need help preparing for OBBBA, setting up a trust, or to review existing irrevocable trusts, Hatley Law Group can guide you through the process. Contact us today to get started!

The 2026 Estate Tax Sunset: What California Families Can Do Now