Estate Tax in 2026: The $15 Million Exclusion, the Sunset That Didn’t Happen, and When an ILIT Still Makes Sense

If you’ve heard that the estate tax exemption was about to be cut in half, you heard something that was true on the calendar for years and then stopped being true in July 2025. Plenty of people are still selling urgency off that cliff. The more useful question is what the current numbers mean for your family, and whether the life insurance you own is quietly sitting inside your estate.

What are the 2026 estate and gift tax numbers?

For a person who dies in 2026, the federal figures are set by IRS Revenue Procedure 2025-32. Confirm current figures with your advisor; they change.

The sunset that didn’t happen

Under the 2017 tax law, the exclusion was scheduled to drop by roughly half after 2025. The One Big Beautiful Bill Act, signed in July 2025, instead set it at $15 million for 2026 with no scheduled sunset, and inflation indexing resumes in later years. “Permanent” only means nothing is on the calendar. A future Congress can change it.

Three details families miss

• Portability isn’t automatic. The $30 million couple figure generally requires a federal estate tax return at the first death to elect it, even when no tax is due.
• The GST exemption isn’t portable. The generation-skipping amount does not carry to a surviving spouse the way the basic exclusion can.
• It’s one pot. Lifetime gifts above the annual exclusion are reported and reduce what’s left at death.

Who does the estate tax actually touch?

Very few estates owe federal estate tax; it is generally estimated at well under one percent. State death taxes reach further: roughly a dozen states plus the District of Columbia have an estate tax, and a handful have an inheritance tax. Michigan and Florida have neither.

So most families don’t have a tax problem. They have a liquidity problem (the wealth is in a house, a business or an IRA, and the bills are in cash), an equalization problem (one business, one child in it, others not), a blended-family problem, or a large pre-tax IRA headed to children under the ten-year rule. Each is solved by cash that arrives on time.

Avoiding probate is not the same as avoiding estate tax

A will controls only property in your sole name. Life insurance, annuities and retirement accounts pass by beneficiary designation, outside the will and outside probate, usually in weeks. A designation beats the will every time. A revocable living trust also avoids probate for what is actually retitled into it, but because you keep control, it is not an estate tax strategy.

How life insurance ends up in your estate

Two different taxes, two different answers. A death benefit is generally income-tax-free to the beneficiary. Whether it counts for estate tax depends on ownership. Under IRC 2042, the full death benefit (not the cash value) is generally included in your gross estate if you held any incident of ownership at death:

• the right to change the beneficiary;
• the right to borrow against or pledge the cash value;
• the right to surrender or cancel the policy;
• the right to assign it, or choose a settlement option.

Naming your spouse as beneficiary doesn’t remove it. The unlimited marital deduction generally just defers the tax to the second death.

How an ILIT works

The fix is a third-party owner, usually an irrevocable life insurance trust. Your attorney drafts it; it gets its own tax ID and bank account; a trustee who is not you is the applicant, owner and beneficiary. You gift premium money to the trust, the trustee pays the carrier, and at death the carrier pays the trust. The trust can then lend to the estate or buy assets from it, putting cash where the executor needs it.

Crummey notices

A gift to a trust is normally a future-interest gift, which doesn’t qualify for the annual exclusion. Under Crummey v. Commissioner (9th Cir. 1968), each beneficiary gets a temporary right, often 30 days, to withdraw their share of each contribution. Nobody withdraws, and the gift generally qualifies for the $19,000 per-recipient exclusion for 2026. The trustee sends the notices and keeps signed copies.

The three-year rule

Under IRC 2035, a policy you transfer into a trust is generally pulled back into your estate if you die within three years. A policy the trust applies for and owns from day one was never transferred, so there’s no clock. The order matters:

1. The trust is signed before the application is submitted.
2. The trust, by its exact legal name and date, is applicant, owner and beneficiary.
3. The trustee signs as owner; you sign only as the insured.
4. Premium notices go to the trustee, and premium is paid from the trust account.

The same $2 million policy, two ways (hypothetical)

A couple has a $33 million estate excluding insurance and buys a $2 million policy with a $28,000 annual premium. Assume the 2026 figures above. All numbers are illustrative arithmetic.

If he had instead assigned an existing policy into the trust and died 20 months later, the result would generally look like the first column.

Survivorship policies, and when an ILIT is the wrong answer

Because a married couple’s estate tax usually comes due at the second death, a survivorship (second-to-die) policy owned by an ILIT is a common match: one contract, two lives, paying when the bill does. Joint underwriting can sometimes include a spouse who couldn’t qualify alone.

But the right question is when does this family need the money? Take a hypothetical business owner with a $6 million estate, a second marriage, a personally guaranteed $300,000 credit line and one of three children running the company. There’s no federal estate tax problem, so an ILIT would add cost and rigidity and remove nothing. And every need (debt, business transition, equalization) fires at his death, so a survivorship policy would pay at the wrong time. In a case like that, single-life coverage, a revocable trust named as beneficiary, and corrected beneficiary forms often do more good. Cheaper is the wrong policy if it pays at the wrong time.

Your estate self-check

1. Is your net worth, including the full death benefit of policies you own, anywhere near $15 million per person?
2. Who owns each policy on your life: you, your spouse, or a trust?
3. If your spouse died first, was portability elected?
4. When did you last read every beneficiary form, including contingents?
5. If you have a trust, was it actually funded?

Your attorney drafts, your CPA confirms the tax picture, and our team coordinates the insurance so it’s owned correctly from day one. Business owners should also read buy-sell agreements after Connelly, and anyone with a large IRA should see the stretch IRA alternative. Learn more about our advanced markets planning.

Go deeper: how Longtable approaches Business Valuation.