A Seismic Shift in Estate Planning is Coming in 2026
At the end of 2025, the current high federal estate tax exemption is scheduled to be cut by nearly half due to a "sunset" provision. This change could subject many more affluent couples to estate taxes. See why you need to act now in the chart below.
This chart shows how the federal estate tax exemption, doubled by the 2017 TCJA, will revert to its former level on January 1, 2026. (Amounts are estimates, adjusted for inflation.)
Finding the Optimal Strategy: Portability vs. Credit Shelter Trust
There are two primary ways to defer estate tax upon the first spouse's death. 'Portability' is simpler, but a 'Credit Shelter Trust' (CST) can offer better asset protection and future tax savings. Enter your asset information below to compare the pros and cons of each strategy.
Enter Your Asset Information
Strategy 1: Portability Election
- Estimated Estate Tax at Second Death:
- Creditor Protection for Survivor: No ❌
- Second Step-Up in Basis: Yes ✔️
- Capital Gains Tax Savings:
- GST Exemption Portability: No ❌
Strategy 2: Credit Shelter Trust (CST)
- Estimated Estate Tax at Second Death:
- Creditor Protection for Survivor: Yes ✔️
- Second Step-Up in Basis: No ❌
- Capital Gains Tax Savings:
- GST Exemption Portability: Yes ✔️
* Simulation is a simplified calculation assuming a post-2026 exemption of $7M, a 40% estate tax rate, and a 20% capital gains rate. It does not account for asset growth. Professional consultation is essential for actual planning.
Mastering the Core Concepts
Understanding the key legal mechanisms of marital estate planning is the first step toward choosing the right strategy. Grasp the principles and roles of each concept.
This allows U.S. citizen spouses to transfer an unlimited amount of assets to each other, during life or at death, free from federal gift or estate taxes. The key is that this is a tax deferral, not a tax exemption. It allows the surviving spouse to maintain their financial stability without the burden of estate taxes immediately after the first death.
A powerful exception to the terminable interest rule. A QTIP trust allows the deceased spouse to provide for the surviving spouse for life, while still controlling who inherits the remaining assets after the survivor's death (e.g., children from a prior marriage). It's a vital tool for blended families, balancing support for the spouse with ultimate asset control.
Portability is not automatic. It must be elected on a timely filed estate tax return (Form 706) for the first deceased spouse. The normal deadline is 9 months after death (with a 6-month extension), but a key relief provision (Rev. Proc. 2022-32) extends the deadline to 5 years for smaller estates not otherwise required to file. This 5-year "wait-and-see" period provides significant strategic flexibility.
Special Planning Strategies by Situation
Every couple's situation is unique. Estate plans must adapt to specific circumstances like a spouse's citizenship status or state property laws. Find the key strategy for your situation.
Have a Non-Citizen Spouse?
The unlimited marital deduction does not apply to non-U.S. citizen spouses. Instead, assets must pass to a special **Qualified Domestic Trust (QDOT)** to qualify for the deduction. A QDOT ensures the IRS can collect the deferred estate tax when principal is distributed or upon the surviving spouse's death. For lifetime gifts, a special annual exclusion applies (around $190,000 for 2025).
Want to Utilize Lifetime Gifting?
**Gift Splitting** allows a married couple to effectively double their annual gift tax exclusion. For example, in 2025, a couple can give up to $38,000 ($19,000 x 2) to a single individual without filing a gift tax return that uses up their lifetime exemption. This requires consent from both spouses and must be reported on a gift tax return (Form 709).
The Critical Impact of State Law: Step-Up in Basis
The way an asset's cost basis is stepped-up at a spouse's death differs dramatically between Common Law states and Community Property states. See the difference with the calculator below.
Common Law State (Most States)
Surviving Spouse's New Basis
Taxable Capital Gain:
Community Property State (9 States)
Surviving Spouse's New Basis
Taxable Capital Gain: