The 2026 Estate Tax Changes: What Business Owners Need to Know About the New $15 Million Exemption

When July 4, 2025 arrived, it brought more than fireworks for business owners and their families. The One Big Beautiful Bill Act (OBBBA) permanently changed the estate planning landscape by increasing the federal estate tax exemption to $15 million per person starting January 1, 2026. For married couples, this means a combined $30 million exemption with proper planning. 

This represents a dramatic shift from what many had been preparing for. Throughout 2024 and early 2025, countless business owners rushed to implement estate planning strategies before the anticipated sunset of the Tax Cuts and Jobs Act provisions. They expected the exemption to drop from roughly $13.99 million to approximately $7 million. Instead, the exemption increased. 

While this sounds like unambiguously good news, the reality is more nuanced. Business owners who implemented estate plans based on the expected sunset now need to reassess their strategies. Those who delayed planning need to understand what the new landscape means for their wealth transfer goals. And everyone should recognize that ‘permanent’ in tax law only lasts until Congress changes it again. 

Understanding What Changed 

The estate and gift tax exemption has been on a roller coaster for the past two decades. In 2001, the exemption sat at just $675,000. The Tax Cuts and Jobs Act of 2017 roughly doubled it to over $11 million, with annual inflation adjustments bringing it to $13.99 million by 2025. That increase was scheduled to sunset on December 31, 2025, reverting to the pre-TCJA baseline of $5 million plus inflation adjustments. 

This created enormous pressure for high-net-worth individuals and business owners. Advisors urged clients to use their exemption before losing it. Families transferred billions of dollars into trusts and other structures. Estate planning attorneys worked overtime to help clients lock in the higher exemption. 

The OBBBA changed all of that. According to analysis from Davis+Gilbert LLP and other major law firms, the new law eliminates the scheduled sunset and instead raises the baseline exemption to $15 million per individual. Unlike the TCJA provisions, this increase has no built-in expiration date. Starting in 2027, the exemption will be indexed for inflation using 2025 as the base year. 

For context, an individual with a $20 million estate in 2026 will only face federal estate tax on $5 million (the amount above the $15 million exemption). At the 40% federal estate tax rate, that means a $2 million tax bill rather than the $5.2 million they might have faced under the old sunset scenario. 

The Permanence Paradox 

Tax professionals have learned to be skeptical when Congress uses the word ‘permanent.’ While the OBBBA contains no sunset provision, it also does not prevent future Congresses from changing the law. Political winds shift. Budget priorities evolve. What seems permanent today may be temporary tomorrow. 

Consider this: the estate tax itself has been repeatedly modified, eliminated, and reinstated over the past century. The current 40% rate could change. The exemption amount could be reduced. New limitations or phase-outs could be introduced. Business owners planning their estates need to build in flexibility for future changes. 

As one wealth management firm noted, while the new exemption provides planning certainty for the next several years, families with estates significantly above $15 million may still benefit from making strategic gifts sooner rather than later. Transferring appreciating assets now locks in their current value and removes future growth from the taxable estate. 

Revisiting Existing Estate Plans 

Many business owners created estate plans in 2024 and early 2025 specifically to take advantage of the higher exemption before it disappeared. These plans often included irrevocable trusts, spousal lifetime access trusts (SLATs), and other sophisticated structures designed to use the exemption while it was available. 

Now that the exemption has increased rather than decreased, these structures may no longer serve their intended purpose. Some may even create unintended consequences. For example, bypass trusts (also called credit shelter trusts) that were designed to capture the full exemption amount may now unnecessarily deny a basis step-up at the surviving spouse’s death. 

Many older estate plans include formula clauses that direct assets ‘up to the federal estate tax exemption’ to children or into trusts, with the remainder going to a spouse or charity. A trust created in 2020 with this language would have allocated approximately $11.7 million. With the 2026 increase, that same language now directs $15 million, potentially leaving less for other beneficiaries than the grantor intended. 

According to guidance from multiple estate planning firms, families should schedule reviews of their existing plans with qualified attorneys. The review should assess whether trusts still align with family goals, whether formula clauses produce the desired results, and whether more tax-efficient structures exist under the new law. 

State Estate Taxes Remain a Factor 

While federal estate tax exposure has decreased for many families, state estate taxes continue to pose challenges in certain jurisdictions. Currently, 17 states and the District of Columbia impose their own estate or inheritance taxes, often with much lower exemption thresholds than the federal government. 

For instance, Oregon’s estate tax exemption is only $1 million. Massachusetts and Oregon both have $2 million exemptions. Even states like New York, which nominally match the federal exemption, have unique rules. New York doesn’t allow portability between spouses and imposes a ‘cliff tax’ where estates exceeding the exemption by more than 5% lose the exemption entirely. 

Connecticut previously matched the federal exemption and is expected to continue doing so, but like New York, it doesn’t allow portability. This means married couples in these states need to be particularly strategic about using both spouses’ exemptions fully. 

Business owners in high-tax states cannot simply ignore estate planning because they’re under the federal threshold. State tax planning may require different strategies than federal planning, including potentially relocating the business or restructuring ownership to minimize state tax exposure. 

Planning Opportunities Under the New Law 

The increased exemption doesn’t eliminate the need for estate planning. Rather, it shifts the focus for many business owners from emergency tax-driven transfers to more thoughtful, long-term wealth management strategies. 

For business owners with estates between $7 million and $15 million, the pressure to act immediately has lessened. These families no longer face the ‘use it or lose it’ scenario that drove much of the planning in 2024 and 2025. However, they should still consider whether strategic gifting makes sense for non-tax reasons, such as teaching children to manage wealth, succession planning, or asset protection. 

For families with estates significantly above $15 million (or $30 million for married couples), advanced planning remains essential. These strategies might include grantor retained annuity trusts (GRATs) to transfer appreciation, sales to intentionally defective grantor trusts to freeze asset values, charitable remainder trusts to provide income while reducing estate size, and valuation discount strategies using family limited partnerships or LLCs. 

One particularly powerful strategy involves gifting appreciating assets. When you transfer business interests or real estate expected to increase substantially in value, you use exemption based on today’s lower value and remove all future appreciation from your estate. This strategy works regardless of exemption levels and provides compounding tax benefits over time. 

Business Succession Considerations 

For many business owners, estate planning and succession planning intersect. The increased exemption provides more flexibility to transfer business interests to the next generation without triggering immediate tax consequences. 

However, business owners should not conflate estate tax planning with succession planning. Even with a higher exemption, families need to address questions of control, management training, buy-sell agreements, and fair treatment of children who are and aren’t involved in the business. These issues require attention regardless of tax considerations. 

The new exemption level may actually make certain succession planning techniques more attractive. For example, installment sales to family members or grantor trusts can now transfer larger business interests without exhausting the exemption. This allows founders to retain some control while gradually transitioning ownership. 

The Generation-Skipping Transfer Tax 

The OBBBA also increased the generation-skipping transfer (GST) tax exemption to $15 million, matching the estate and gift tax exemption. Unlike the estate exemption, the GST exemption is not portable between spouses. 

This matters for business owners considering multi-generational wealth transfers. Dynasty trusts and other structures designed to benefit grandchildren and later generations now have more room to operate. However, the non-portability means married couples need to carefully allocate GST exemption between both spouses to maximize benefits. 

Business owners with closely held companies often use GST-exempt trusts as part of succession planning, allowing business interests to pass down through multiple generations while maintaining consolidated ownership and avoiding repeated estate taxes. 

Annual Gifting Still Matters 

While the lifetime exemption receives most attention, the annual gift tax exclusion remains a valuable planning tool. For 2025 and 2026, the annual exclusion remains at $19,000 per recipient. This means you can give $19,000 to as many people as you want each year without using any of your lifetime exemption or filing a gift tax return. 

For a married couple with three children and six grandchildren, this amounts to $342,000 per year in tax-free transfers ($19,000 x 9 recipients x 2 spouses). Over a decade, that’s $3.42 million removed from the estate through simple annual gifts, requiring no complex trusts or legal structures. 

Business owners can leverage annual exclusion gifts to transfer minority interests in their companies to children or trusts. When properly structured with appropriate valuation discounts for lack of control and marketability, these transfers can be quite valuable while staying within the annual exclusion limits. 

Working with Professional Advisors 

Estate planning for business owners involves complex interactions between tax law, business law, family dynamics, and long-term financial goals. The OBBBA changes make this complexity even more pronounced as families reassess strategies that may have been appropriate under the old sunset scenario but need adjustment under the new permanent higher exemption. 

At Escalon, our tax and CFO services professionals work alongside your estate planning attorneys and other advisors to ensure your business financials support your estate planning goals. We can help with business valuations, financial statement preparation, entity restructuring analysis, and the ongoing financial reporting needed to execute and maintain sophisticated estate plans. 

The intersection of business operations and estate planning requires careful coordination. Poor execution can lead to unwanted tax consequences, family disputes, or business disruption. Professional guidance helps ensure your plans work as intended both during your lifetime and at death. 

Action Steps for Business Owners 

Given these changes, business owners should take several concrete steps: 

First, schedule a comprehensive review of your existing estate plan with a qualified attorney. Don’t assume that a plan created in 2024 or early 2025 still serves your goals under the new law. 

Second, obtain an updated valuation of your business. Understanding current value helps you assess whether you’re above or below the exemption threshold and guides strategic decisions about transfers and gifts. 

Third, evaluate your business succession timeline. The increased exemption may allow you to accelerate or modify succession plans you had been delaying due to tax concerns. 

Fourth, review beneficiary designations on retirement accounts, life insurance, and other assets. These designations often bypass trusts and can inadvertently undermine carefully crafted estate plans. 

Fifth, consider family governance structures. With more wealth potentially passing to heirs free of estate tax, questions of financial literacy, family mission, and wealth education become increasingly important. 

Finally, build flexibility into your plan. Given the political nature of estate tax legislation, assume that changes may occur in the future. Structures that can adapt to different tax environments will serve you better than those rigidly tied to current law. 

Looking Ahead 

The estate tax changes under the OBBBA provide both opportunities and challenges for business owners. While the increased exemption reduces federal estate tax exposure for many families, it also requires reassessment of strategies that were put in place under very different assumptions. 

Business owners should view this as an opportunity rather than a disruption. The reduction in time pressure allows for more thoughtful planning aligned with family values and long-term business goals rather than driven primarily by tax deadlines. 

At the same time, complacency would be a mistake. Estate planning remains essential for business owners at all wealth levels. State taxes, business succession, asset protection, and family governance all require attention regardless of federal exemption levels. 

The key is to approach estate planning as an integrated part of your overall business and financial strategy, not as a standalone tax exercise. When done properly, estate planning protects your wealth, facilitates smooth business transitions, and provides for your family in ways that align with your values. 

If you need assistance understanding how these changes affect your business and estate planning needs, contact Escalon’s team of tax and financial professionals. We can help ensure your business financial structures support your long-term wealth transfer and succession planning goals.