The Estate Tax Timeline: What’s Changed, What’s Coming, and Why 2026 Matters

2001 to 2010: From Modest Exclusions to Full (Temporary) Repeal

In 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) began a phased increase of what was then a very modest federal estate tax exclusion. At that time, an individual could only shield $675,000 of their estate from tax, but Congress scheduled step-ups over the next several years:

• 2001: $675,000

• 2002: $1,000,000

• 2004: $1,500,000

• 2006: $2,000,000

• 2009: $3,500,000

• 2010: Complete repeal (no federal estate tax for that year)

Because EGTRRA was passed under budget reconciliation rules, its increases, including the eventual repeal in 2010, were set to expire unless renewed by further legislation. For the one year of 2010, estates of any size paid zero federal estate tax. However, anyone who died on or after January 1, 2011, suddenly found themselves back under a different set of rules.

2011 to 2017: The Estate Tax Returns (at $5 Million plus Inflation)

Late in 2010, Congress passed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act (often called TRA 2010). That law restored the estate tax for 2011 but set the exemption at $5,000,000 per person, indexing it thereafter for inflation, and capped the top rate at 35 percent for 2011 and 2012. Beginning in 2013, the top rate climbed back to 40 percent. The inflation-adjusted unified exclusion, also known as the basic exclusion amount (BEA), was as follows:

• 2011: $5,000,000 (top rate 35 percent)

• 2012: $5,120,000 (top rate 35 percent)

• 2013: $5,250,000 (top rate 40 percent)

• 2014: $5,340,000 (top rate 40 percent)

• 2015: $5,430,000 (top rate 40 percent)

• 2016: $5,450,000 (top rate 40 percent)

• 2017: $5,490,000 (top rate 40 percent)

From 2011 through 2017, most estates under roughly $5 million paid nothing. Only very large estates faced any tax, and then only on the amount above each year’s threshold, at up to 40 percent. In other words, the top statutory rate applied only to the portion exceeding the exemption.

2018 to 2025: Doubling Under TCJA

The Tax Cuts and Jobs Act (TCJA) of December 2017 temporarily doubled the BEA for the years 2018 through 2025. While the estate tax itself remained in place, the exemption threshold jumped to roughly $11 million per person, indexed for inflation each year:

• 2018: $11,180,000

• 2019: $11,400,000

• 2020: $11,580,000

• 2021: $11,700,000

• 2022: $12,060,000

• 2023: $12,920,000

• 2024: $13,610,000

• 2025: $13,990,000

The tax rate stayed flat at 40 percent on any taxable portion. As a result, many families who would have previously faced a federal estate tax liability no longer owed any tax unless their estate exceeded these high exemption thresholds.

January 1, 2026 and Beyond: Sunset Likely Means Reversion to Roughly $7 Million

The TCJA’s increased exemption is set to sunset on December 31, 2025. Without new legislation, the BEA will revert to its 2017 level of $5 million, adjusted for inflation from 2017 through 2026. Most projections estimate that figure will be around $7 million per person in 2026. If Congress does not act, the exemption will again drop while the top rate remains at 40 percent.

Several bills have been proposed to extend or raise the exemption further, but none have passed as of mid-2025. Therefore, clients should assume that beginning January 1, 2026, the exemption will fall to around $7 million per person and $14 million for married couples.

Why the Exemption Amounts Matter and Why the 40 Percent Rate Is Misunderstood

Many people incorrectly believe that estate tax applies to the entire estate at a flat 40 percent rate. In truth, each person receives an exemption amount. Only the value of the estate that exceeds this threshold is subject to tax, and only that portion is taxed at a rate up to 40 percent.

For example, in 2025, if someone dies with a $15 million estate and the exclusion is $13.99 million, only $1.01 million is taxable. The estate tax would apply only to that excess, resulting in a liability of roughly $404,000. The entire estate is not taxed at 40 percent.

If a person dies in 2026 with a $6 million estate and the exemption is $7 million, there is no estate tax owed.

Strategies to Reduce the Taxable Estate

1. Irrevocable Life Insurance Trusts (ILITs) Placing a life insurance policy in an irrevocable trust ensures the policy’s death benefit is not included in the taxable estate. This can provide significant savings for estates that would otherwise cross the exemption threshold due to insurance proceeds.

2. Annual and Lifetime Gifting Individuals can gift up to $17,000 per recipient annually (as of 2023) without using their lifetime exclusion. Married couples can double this amount. These gifts reduce the taxable estate dollar for dollar. Between 2018 and 2025, many families used the high lifetime exemption to make substantial transfers of wealth.

3. Grantor Retained Annuity Trusts (GRATs) A GRAT allows individuals to transfer appreciating assets into a trust while retaining an annuity. If the assets grow faster than IRS projections, the excess passes to heirs free of gift or estate tax. GRATs were especially useful when exemptions were higher and will remain valuable if the exclusion drops in 2026.

4. Family Limited Partnerships (FLPs) and LLCs By transferring assets into an FLP or LLC and gifting fractional interests, families can claim valuation discounts for lack of control or marketability, reducing the estate’s taxable value.

5. Charitable Trusts (CRTs and CLTs) Assets placed in a Charitable Remainder Trust or Charitable Lead Trust can provide income and tax benefits while removing assets from the estate. These strategies also align with philanthropic goals.

These and other trust-based tools are commonly used by high-net-worth individuals to manage estate tax exposure. The goal is to reduce the size of the gross estate so that the IRS has less to tax.

Step-Up in Basis vs Estate Tax

The "step-up" in basis adjusts the value of inherited property to its fair market value at the time of the owner’s death. This often eliminates unrealized capital gains and saves the heir from paying capital gains tax on prior appreciation.

This benefit applies even if the estate is not subject to the estate tax. However, some legislative proposals have suggested removing or limiting this step-up rule, particularly if the estate tax is repealed in the future. If the step-up is eliminated, heirs could face capital gains taxes on unrealized appreciation at death.

In summary:

• The estate tax only applies to the portion of the estate that exceeds the exclusion.

• The step-up in basis resets the cost basis for inherited property, reducing future capital gains taxes unless Congress changes the rule.

Why December 31, 2025 Is a Key Deadline

• Act Now on Gifting: If your estate may exceed the projected $7 million limit, consider making gifts or funding trusts before the current higher exemption expires.

• Review ILITs and GRATs: Trusts created under the assumption of an $11 million+ exemption may need revision.

• Use Portability: If one spouse dies without using their full exemption, the surviving spouse can claim the unused portion, but this requires timely filing.

• Monitor Legislation: Congress could still pass laws that change or extend the current exemption, though nothing is guaranteed.

Conclusion: Plan Now, Not Later

Since 2001, the estate tax exemption has fluctuated significantly. It rose from $675,000, disappeared briefly, then returned and eventually more than doubled. As of 2025, we are at the peak of that exemption. After December 31, the amount may drop back to $7 million.

This makes 2025 a critical year for planning. Trusts such as ILITs, GRATs, and other irrevocable strategies are essential for those with estates approaching the threshold. And while the estate tax rate remains 40 percent, it only applies to amounts above the exemption.

Planning ahead can save families millions. Delay can mean exposure to tax that could have been avoided with proper planning.

The information provided herein is intended solely for general informational purposes and should not be interpreted as personalized investment advice or an individualized recommendation. Investment strategies discussed may not be appropriate for every investor. Each individual should carefully evaluate any strategy in light of their unique financial situation before making investment decisions.

All opinions expressed are subject to change without notice in reaction to shifting market conditions. While data presented may come from third-party sources believed to be reliable, Mietzner Wealth Management cannot guarantee its accuracy, completeness, or reliability.

Any examples provided are purely illustrative and do not represent expected outcomes or guaranteed results.

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