Estate and Gift Planning for Owners After the 2025 Law
What the permanent higher exemption changes for business owners, the tools still worth using, the state taxes that remain, and the payment relief for estates built on a company.
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
The 2025 tax law set the federal estate and gift exemption at $15 million per person from 2026 — $30 million per couple with portability — indexed after 2026, no longer scheduled to drop. For most owners the question has shifted from avoiding estate tax to preserving the basis step-up at death, while a dozen states still tax estates.
On this page
What are the federal rules now?
| Item | 2026 |
|---|---|
| Lifetime exemption (estate and gift combined) | $15 million per person, indexed for inflation after 2026 |
| Portability | A surviving spouse can use the deceased spouse's unused exemption if an estate tax return is filed |
| Annual gift exclusion | $19,000 per recipient for 2026 (inflation-adjusted yearly), with no limit on recipients |
| Rate above the exemption | 40 percent |
| Gift tax return (Form 709) | Required for gifts above the annual exclusion, and recommended for business interests to start the statute of limitations |
| Basis of inherited property | Stepped up to fair market value at death |
| Basis of gifted property | Carries over from the donor |
How does the higher exemption change the strategy?
- Owners under the exemption. Gifting business interests during life now has a cost with no federal estate tax benefit: the recipient inherits your low basis instead of a step-up. Holding until death is often better, with lifetime transfers reserved for control and succession reasons.
- Owners above the exemption. Lifetime gifts of discounted minority interests, sales to grantor trusts, and life insurance trusts still remove growth from the estate. A married couple with a business worth $40 million still faces tax.
- State taxes. States such as New York, Massachusetts, Illinois, Oregon, Washington, and Minnesota tax estates at thresholds far below the federal amount — from $1 million in Oregon to $7.35 million in New York for 2026 — and Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania tax inheritances. Florida has no estate or inheritance tax, which is one reason owners change domicile.
Which tools still matter?
- Valuation discounts for lack of control and marketability on gifts of minority interests, supported by a qualified appraisal and adequate disclosure on Form 709.
- Portability, which requires filing an estate tax return at the first death even when no tax is due; a late election is possible within five years for smaller estates.
- Buy-sell agreements that set value and provide liquidity.
- Life insurance held in an irrevocable trust so the proceeds are outside the estate.
- Section 6166, which lets an estate pay the tax attributable to a closely held business over up to 14 years — interest only for up to five years, then up to 10 annual installments — when the business interest exceeds 35 percent of the adjusted gross estate.
What about basis planning?
Owners who gave away business interests under the older, lower exemptions can consider swapping assets back into the estate (where a grantor trust allows it) so they receive a step-up at death. The right move depends on the gain embedded in the interest, the family's plan to sell or hold, and state tax.
Frequently asked questions
Do I still need a gift tax return for gifts under the annual exclusion?
No, unless the gift is of a future interest, you and your spouse elect to split gifts, or you want to report a business-interest gift to start the three-year statute.
Does the step-up apply to a business held in an S corporation?
The stock basis steps up; the corporation's inside asset basis does not. A partnership with a Section 754 election can step up inside basis as well.
Are gifts to a spouse taxable?
Not if the spouse is a U.S. citizen. Gifts to a non-citizen spouse have a separate annual exclusion — $194,000 for 2026.
Is the $15 million exemption permanent?
The law has no sunset date, unlike the 2017 provisions. Congress can still change it.
Official sources
The IRS explains: “Beginning January 1, 2011, estates of decedents survived by a spouse may elect to pass any of the decedent's unused exemption to the surviving spouse. This election is made on a timely filed estate tax return for the decedent with a surviving spouse.” — Internal Revenue Service, Estate tax, https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
The IRS explains: “To begin the running of the statute of limitations for a gift, the gift must be adequately disclosed on Form 709 (or an attached statement) filed for the year of the gift.” — Internal Revenue Service, Instructions for Form 709 (2025), https://www.irs.gov/instructions/i709
Next step
Fairlight Accounting handles U.S. domestic, cross-border (U.S.–Canada), and international tax returns, plus bookkeeping, payroll, and CFO advisory. Our U.S. Tax Desk prepares gift tax returns with the disclosure that starts the clock and coordinates basis planning with the estate attorney. See pricing or book a free fit call.
Cross-border taxes, handled in one place
U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
Book a free fit call