2026 Federal Estate Tax Exemption

I recently had a client, Emily, discover a codicil to her mother’s trust had been misplaced during a home renovation. While the primary trust was perfectly valid, this codicil contained a critical change to the distribution of a vacation property in Tahoe, valued at $850,000. The delay in finding it not only caused significant emotional distress but also triggered a costly legal battle with her siblings to establish the intended estate plan. This is a scenario I see far too often – a seemingly small oversight with enormous financial repercussions.

The anxiety surrounding the “2026 Sunset” of the 2017 Tax Cuts and Jobs Act was palpable. For years, estate planners warned of a potential halving of the Federal Estate Tax Exemption, but that fear is now officially laid to rest. The One Big Beautiful Bill Act (OBBBA) permanently established the Federal Estate Tax Exemption at $15 million per person ($30 million for couples) effective Jan 1, 2026. This eliminates the ‘2026 Sunset’ fear, though the top tax rate remains at 40% for assets exceeding this permanent threshold, which is now indexed annually for inflation.

As an Estate Planning Attorney and CPA with over 35 years of experience, I’ve seen firsthand how critical understanding the step-up in basis and potential capital gains taxes is. Clients often overlook that while the estate tax exemption shields assets from estate tax, it doesn’t eliminate the capital gains implications when those assets are eventually sold. For example, if Emily inherited that Tahoe property, she’d receive a new, fair market value basis as of her mother’s date of death, potentially avoiding decades of accrued capital gains taxes. However, proper valuation is crucial – the IRS scrutinizes these figures, and that’s where my CPA background provides an invaluable advantage.

But don’t assume a high exemption means estate planning is unnecessary. Even if your estate is well below the $15 million threshold, a comprehensive plan prevents probate, minimizes family disputes, and ensures your wishes are honored. For deaths occurring on or after April 1, 2025, assets exceeding $208,850 generally trigger full probate. However, per Probate Code § 13050, this calculation MUST exclude all California-registered vehicles (regardless of value), boats, and up to $20,875 in unpaid salary. Furthermore, AB 2016 now allows a simplified ‘Primary Residence’ petition for homes valued up to $750,000, significantly expanding probate shortcuts.

Furthermore, consider the impact of Proposition 19, particularly regarding inherited real estate. under Proposition 19, heirs only keep a parent’s low property tax base if they move into the home as their primary residence within one year. Critically, for 2026, the tax-free ‘basis boost’ is capped at $1,044,586 over the original taxable value; any value exceeding this adjusted cap results in a partial reassessment even if the child moves in.

Finally, with the increasing prevalence of digital assets, it’s crucial to address their access and control within your estate plan. Per the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), custodians like Apple or Google are legally prohibited from granting executors access to the content of emails or private messages without ‘explicit written direction’ in the will or trust. Metadata (the ‘catalog’) may be accessible, but the private content remains locked without this specific legal trigger.

• Exemption Amount: The federal estate tax exemption is $15 million per individual and $30 million for a married couple, permanently as of January 1, 2026.
• Capital Gains: While the exemption shields estate tax, inherited assets are still subject to capital gains taxes upon sale, and proper valuation is critical.
• Probate Threshold: Assets over $208,850 (as of April 1, 2025) generally require full probate, but exceptions exist for registered vehicles and unpaid salary.

What does a California probate court look for when interpreting testamentary intent?

In California, a last will and testament is reviewed under probate standards that focus on intent, capacity, and execution. Clear drafting reduces ambiguity, limits misinterpretation, and helps families avoid unnecessary conflict during estate administration.

• Ambiguity: Avoid vague terms that trigger probate disputes.
• Incapacity: verify legal capacity at signing.
• Omissions: check for missing amendments often.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Controlling Legal Standards Governing California Estate and Asset Transfers

• Probate & Court Procedure:
  California Courts – Wills, Estates, and Probate
  The official judicial branch guide for navigating the probate process; it provides updated 2026 checklists for determining if an estate qualifies for “Summary Probate” under the $208,850 personal property limit or the $750,000 primary residence threshold (AB 2016).
• Property Tax Reassessment (Prop 19):
  California State Board of Equalization (Prop 19)
  The definitive resource for understanding the “Parent-to-Child” reassessment exclusion; it outlines the strict one-year deadline for heirs to move into an inherited home as their primary residence to maintain the parent’s low property tax base.
• Advance Healthcare Planning:
  California Attorney General – Advance Health Care Directive
  Provides the official California statutory form and legal guidelines for appointing a health care agent; this resource emphasizes the necessity of combining a medical power of attorney with a HIPAA release to ensure doctors can communicate with family during an emergency.
• Federal Estate & Gift Tax:
  IRS Estate Tax Guidelines
  The authoritative federal portal for estate and gift tax reporting; this page reflects the 2026 “OBBBA” permanent exemption of $15 million per person, effectively replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.
• Digital Asset Access (RUFADAA):
  California RUFADAA Law (Probate Code §§ 870-884)
  Access the full statutory text of the Revised Uniform Fiduciary Access to Digital Assets Act; it explains why executors are legally barred from accessing encrypted accounts, email, or crypto-wallets unless the decedent provided explicit “prior consent” in their estate plan.