It does not sunset. The scheduled reduction was repealed before it took effect. The One Big Beautiful Bill Act, signed July 4, 2025 as Public Law 119-21, amended Internal Revenue Code Section 2010(c)(3) to set the federal estate and gift tax exemption at $15 million per person for deaths and gifts after December 31, 2025, and removed the sunset entirely. The exemption is indexed for inflation going forward. If your estate plan was built around an expected drop to roughly $7 million, it was built for a scenario that never happened.
For Massachusetts families, the more relevant number was never the federal one anyway.
What Was the Sunset, and Why Did Everyone Expect It?
The 2017 Tax Cuts and Jobs Act roughly doubled the federal exemption, from about $5.49 million per person in 2017 to $11.18 million in 2018. That increase carried an expiration date at the end of 2025.
Without action, the exemption would have reverted to the pre-2017 baseline adjusted for inflation, widely estimated around $7 million per person. That prospect drove years of defensive planning: large lifetime gifts, spousal lifetime access trusts, and a general push to use exemption before losing it.
Congress acted. The OBBBA raised the exemption rather than letting it fall, and deleted the expiration language.
Where Do the Numbers Stand Now?
| Figure | 2026 amount |
| Federal estate and gift exemption | $15 million per person |
| Married couple with portability | $30 million |
| Federal GST exemption | $15 million (not portable) |
| Top federal estate tax rate | 40% |
| Annual gift tax exclusion | $19,000 per recipient |
| Massachusetts estate tax threshold | $2 million |
| Massachusetts top rate | 16% |
Inflation indexing resumes in 2027 using 2025 as the base year. The IRS estate tax overview covers the federal mechanics.
If I Made Large Gifts Before the Deadline, Did I Waste Them?
No. Gifts made under the higher exemption are protected.
The IRS anti-clawback regulation confirms that gifts made during a high-exemption period are not recaptured if the exemption later decreases. Because the OBBBA actually raised the exemption rather than lowering it, this is largely academic for now. Your gifts simply used lifetime exemption, and there is no adverse consequence.
Trusts created in that push remain valid and continue to do useful work. A spousal lifetime access trust, for example, still provides creditor protection, still moves future appreciation outside your estate, and for a Massachusetts family may still reduce state estate tax. The federal urgency is gone. The structures are not worthless.
What deserves a second look is any plan drafted with formula clauses tied to the federal exemption. A will or trust that funds a credit shelter share with “the maximum amount that can pass free of federal estate tax” now funds $15 million, which in a $6 million estate means the entire estate. If the remainder was meant for a surviving spouse, the formula may now disinherit them. This is a real drafting problem and it is worth checking.
Does This Mean Massachusetts Families Are Fine?
No, and this is the point that gets lost in the federal coverage.
Massachusetts taxes estates over $2 million, with rates reaching 16%. The federal change did nothing to that threshold. For the overwhelming majority of families in Essex County and the Merrimack Valley, the federal exemption was never the binding constraint. The state one always was.
Consider the arithmetic on an ordinary Andover household: a home with $1.1 million of equity, retirement accounts of $700,000, investments of $400,000, and a $300,000 life insurance policy owned personally. That is $2.5 million. No federal estate tax is due and will not be for the foreseeable future. Massachusetts estate tax is due.
Two features of the Massachusetts tax make it worse than people expect:
- It is a threshold, not an exemption in the usual sense. Once you exceed $2 million, the tax is computed on the entire taxable estate rather than only the excess above the line. Crossing the threshold by a small margin produces a disproportionate bill.
- There is no portability. Unlike the federal system, Massachusetts does not let a surviving spouse use the deceased spouse’s unused threshold. A couple who leaves everything outright to each other can waste one $2 million threshold entirely.
What Should I Actually Do Now?
The urgency changed. The work did not.
- Check your formula clauses. Any plan referencing the federal exemption by formula should be reviewed. This is the most likely place a good plan has quietly broken.
- Build credit shelter planning for the state tax. A properly drafted trust preserves both spouses’ $2 million Massachusetts thresholds instead of wasting one. For a $3 million couple, this can eliminate the state tax entirely.
- Look at life insurance ownership. A policy you own personally counts toward the $2 million. Held in an irrevocable life insurance trust, it does not, and it provides liquidity to pay whatever tax remains.
- Consider lifetime gifting. Massachusetts has no gift tax, and since 2023, lifetime gifts are not added back to the Massachusetts estate. This makes gifting an unusually effective state-level tool. Weigh it against the loss of the basis step-up.
- Shift attention to income tax basis. With federal estate tax off the table for most families, preserving the step-up at death is often worth more than removing assets from the estate.
Our estate planning practice runs these numbers before recommending a structure, because the right answer for a $2.5 million estate looks nothing like the right answer for a $20 million one.
Could Congress Change This Again?
Yes. “Permanent” in tax law means there is no scheduled expiration date, not that a future Congress cannot act.
The practical takeaway is that plans should not be built on a single assumed exemption figure. Flexible drafting, disclaimer provisions, and trusts that can adapt to different thresholds age better than plans hardwired to one number, as the last several years demonstrated.
Frequently Asked Questions
Did the federal estate tax exemption drop in 2026?
No. It rose to $15 million per person, and the scheduled sunset was repealed by the OBBBA in July 2025.
Do I still owe Massachusetts estate tax if I am under $15 million?
Very possibly. Massachusetts taxes estates over $2 million regardless of the federal exemption, and the federal change did not affect it.
Are the trusts I set up before the deadline now useless?
No. They still provide asset protection, remove future appreciation from your estate, and may reduce Massachusetts estate tax.
Is the $15 million exemption portable between spouses?
The estate and gift exemption is portable with a timely filed return. The generation-skipping transfer exemption is not.
Redirect the Planning to the Tax You Actually Owe
The sunset that shaped a decade of estate planning conversations was cancelled. For a small number of very wealthy families, that is a meaningful reprieve. For most Massachusetts households, it changes little, because the $2 million state threshold was always the number that mattered and it has not moved.
To review whether your plan still fits the current rules, contact us to schedule a consultation. We work with families throughout Essex County and the Merrimack Valley, including Andover, North Andover, Reading, North Reading, and Middleton.