Attorney
The increased federal estate tax exemption means fewer estates will owe federal estate tax, but that does not mean your estate plan can be left untouched. A higher exemption can change how your trust is funded, how assets pass at death, and whether certain tax-saving provisions still work as intended.
If your plan was drafted when exemption amounts were lower, it may operate differently today than you expect. Now is the time to understand how the current rules affect you.
What Is the Current Federal Estate Tax Exemption?
The federal estate tax exemption is the amount you can transfer during life or at death without paying federal estate tax. For 2026, the exemption is $15 million per person, indexed for inflation. For married couples, that means up to $30 million can potentially be shielded from federal estate tax with proper planning and use of portability.
Portability allows a surviving spouse to claim any unused portion of the first spouse’s exemption, effectively preserving the combined amount if certain filing requirements are met.
While those numbers place federal estate tax out of reach for most families, the size of the exemption can directly affect how your trust is funded, how assets are allocated at the first death, and whether older tax-driven provisions still make sense under current law.
Does a Higher Exemption Mean You No Longer Need Tax Planning?
In many cases, yes, federal estate tax is no longer the primary concern for most California families. But eliminating federal estate tax exposure does not eliminate the need for thoughtful planning.
You may still need to consider:
- California property values, especially real estate
- Capital gains tax planning
- Income tax consequences for beneficiaries
- Asset protection for children or grandchildren
- Blended family considerations
If your documents were designed to reduce estate tax under older, lower exemption amounts, they may now create results that do not match your current goals.
How Older Trust Provisions May Be Affected
Many estate plans include formulas that automatically divide assets between a “bypass trust” and a “survivor’s trust” based on the exemption amount in effect at the first spouse’s death.
When exemptions were lower, this structure helped reduce the estate tax. With today’s higher exemption, those same formulas may:
- Shift more assets into a bypass trust than you intended
- Limit a surviving spouse’s flexibility
- Create administrative complexity without meaningful tax savings
In some cases, families unintentionally lock up assets in trusts that no longer provide a tax benefit. Reviewing your trust language can help ensure it still aligns with your wishes.
What About Capital Gains and Step-Up in Basis?
Federal estate tax is only one piece of the puzzle. Income tax planning has become more important as exemption amounts increased.
When assets are included in a taxable estate at death, beneficiaries generally receive a “step-up” in basis, meaning capital gains are measured from the value at the date of death rather than the original purchase price.
If assets are structured in a way that excludes them from the surviving spouse’s estate, you may unintentionally lose part of that basis adjustment. That can result in higher capital gains tax later if the asset is sold.
For families holding highly appreciated California real estate or long-term investments, this issue deserves close attention.
Should You Modify Your Estate Plan?
Not everyone needs a full rewrite. But many people benefit from a focused review.
We often recommend revisiting your plan if:
- Your net worth has changed significantly
- You created your documents more than a few years ago
- Your trust uses formula-based funding tied to federal exemption amounts
- Your family structure has evolved
Even if the federal estate tax no longer applies to you, your estate plan should still reflect your goals, your beneficiaries, and your tax outlook.
Why California Residents Still Need Careful Planning
California does not impose its own state estate tax. However, high property values mean many residents have estates that approach or exceed federal thresholds.
In addition, long-term capital gains tax and property tax considerations under Proposition 13 can play a significant role in wealth transfer decisions. An estate plan designed years ago may not fully account for these factors under current law.
We look at your entire financial picture, not just the federal exemption amount, to determine whether your structure still makes sense.
A Higher Exemption Is an Opportunity to Reassess
A higher federal estate tax exemption creates flexibility. It allows many families to simplify their plans, reduce administrative burdens, and shift focus toward income tax efficiency and asset protection. But flexibility only helps if your documents are up to date.
If you have not reviewed your estate plan since the exemption increased, now is a good time to do so. At Scott D. Fisher, A Professional Law Corporation, we can evaluate how the current exemption interacts with your trust, your assets, and your long-term goals. Contact us to schedule a review and make sure your plan works the way you intend.