What the 2026 Estate Tax Exemption Changes for Older Plans

What actually changed

The federal estate and gift tax exemption had been scheduled to fall by roughly half at the end of 2025, back toward a pre-2018 level adjusted for inflation. That reduction did not happen. The One Big Beautiful Bill Act, Public Law 119-21, signed July 4, 2025, amended the basic exclusion amount in the Internal Revenue Code and set it at $15 million per individual for decedents dying and gifts made after December 31, 2025.

Two features of that change matter more than the headline number. The first is that it removed the scheduled expiration rather than extending it, so there is no sunset date on the calendar prompting a deadline. The second is that the exemption is indexed for inflation beginning in 2027, so it rises rather than erodes.

A general summary of current federal law. Individual results depend on lifetime gifts, portability elections, and other facts. Confirm your own position with your CPA and attorney.

For most Santa Clarita Valley households, the practical consequence is that federal estate tax is no longer the binding constraint it was assumed to be when many of their documents were written. That does not make estate planning less relevant. It moves where the attention belongs.

Formula clauses in older documents

This is the part worth raising with an attorney, and it is easy to miss because nothing about the document looks out of date.

Many trusts drafted in earlier decades divide assets at the first spouse's death using a formula tied to the federal exemption rather than a fixed dollar amount. The language typically directs the largest amount that can pass free of federal estate tax into a credit shelter or bypass trust, with the remainder passing to the surviving spouse.

That formula was written when the exemption was a fraction of its current level. Applied today, the same sentence can direct a far larger share of the estate into the bypass trust than the couple intended, in some cases most of it. The surviving spouse may end up with less outright control than the document was meant to provide, and assets in that trust are generally not included in the survivor's estate, which affects how they are treated for basis purposes later.

Whether that outcome is a problem depends entirely on the family, the drafting, and the goals. It is a legal question and an attorney's determination. The point here is narrower: if a trust predates the current exemption regime and uses formula language, that is a reason to have it read again rather than assume it still expresses what was intended.

The basis question

With fewer families facing federal estate tax, income tax has become the more common concern in estate planning conversations, and the mechanism at the center of it is the basis adjustment at death.

Assets included in a decedent's gross estate generally receive an adjustment in basis to fair market value at the date of death. For a long-held asset with a low basis, which describes a great many California homes and a good number of concentrated stock positions, that adjustment can eliminate a substantial unrealized gain for the heirs.

Assets that were moved out of the estate during life, including those held in certain irrevocable trusts, are generally not included in the gross estate and therefore may not receive that adjustment. Where the estate tax exposure that motivated the transfer has since disappeared, the family may have traded an estate tax problem it no longer has for a capital gains cost it will actually pay.

That is a real trade-off rather than a rule, and unwinding or modifying an irrevocable structure is its own legal and tax analysis. It is a question for your attorney and CPA together, and it is one that a number of families who planned under the older assumptions have not yet revisited.

Portability and the filing requirement

Portability allows a surviving spouse to use the deceased spouse's unused exemption, which is the mechanism that gets a married couple to roughly double the individual amount. It is not automatic.

The election is made by filing a federal estate tax return for the first spouse to die, even where no tax is owed and no return would otherwise be required. Families that assume the doubling happens by default sometimes discover otherwise years later, at a point when the deadline has passed and the remedies are narrower.

Whether to make the election, and by when, is a question for the estate's attorney and CPA at the time. It belongs on the list of things to raise early rather than after an estate is closed.

Where California fits

California imposes no state estate tax and no inheritance tax, so for a California family the federal exemption is generally the operative threshold. That is not true everywhere, and households with property or residency ties in states that impose their own estate tax may face a lower threshold there. That is worth confirming with counsel where another state is involved.

Two California features do more work in practice than the estate tax does. Proposition 13 keeps assessed value well below market value on long-held property, and Proposition 19 changed the rules governing certain parent-child transfers of real property and property tax reassessment, with eligibility depending on specific requirements. Both make how and when a residence transfers a live question independent of any federal exemption.

Community property treatment also affects how assets acquired during marriage are characterized and how basis may be handled at the first death. How California taxes retirement income covers the income tax side, and trust funding in California covers whether the documents reach the assets at all.

What a review looks at

A document review after a change of this size is mostly a set of questions for the attorney who drafted the plan, informed by a current picture of the assets.

• Does the trust divide assets at the first death using a formula tied to the federal exemption, and what would that formula produce at current levels?
• Were assets moved into an irrevocable structure primarily to address estate tax exposure that no longer applies?
• Which assets carry a low basis, and how would they be treated under the current structure?
• Has a portability election been made or planned for, where one spouse has already died?
• Do beneficiary designations across accounts and policies still agree with the documents?
• Has real property been reviewed in light of Proposition 19 and current titling?

The first two are legal questions. The third and fourth involve the CPA. The fifth and sixth are where a financial advisor can gather and track the underlying information so the attorney is working from something current.

How Avinci contributes

Avinci Wealth Management is a Registered Investment Adviser registered in California, Arizona, Illinois, Texas, and Nevada, firm CRD #327780, headquartered at 23929 Valencia Blvd, Suite 404 in Santa Clarita, with additional offices in Beverly Hills and Woodland Hills. When providing investment advisory services, Avinci Wealth Management is subject to its fiduciary obligations under applicable investment adviser law.

Avinci does not practice law and does not draft or interpret estate documents. What we contribute is the financial picture the review depends on. At the client's direction, Avinci may provide administrative assistance with account forms provided by financial institutions and help collect and track account titling, cost basis, and beneficiary-designation information, so your attorney and CPA are reading a current set of facts rather than a reconstructed one. Legal determinations are referred to the client's attorney.

Under the Retirement Blueprint, estate coordination sits alongside investments, tax, income, and insurance, which is why a basis question and a withdrawal decision can be looked at together. Founder Lindahl Lucas personally oversees the development of each Retirement Blueprint. Related reading: what an advisor can and cannot do in California estate planning.