As we start the new year, this Federal Tax Update highlights estate planning-related federal tax information as you consider 2026 planning options. Because laws could change that affect this information, you should contact your Lathrop GPM estate planning attorney for advice prior to taking any transfer tax planning action.
Key Tax Concepts for 2026
- Lifetime Exclusion Increased to $15,000,000: As of January 1, 2026, the federal gift and estate tax exclusion amount, as well as the exemption from generation-skipping transfer (“GST”) tax (collectively, the “lifetime exclusion amounts”), have increased to $15,000,000 per person, which is a combined $30,000,000 for a married couple. This increase of $1,010,000 per person presents additional gifting opportunities even for individuals who previously used their full lifetime exclusion amounts.
- Annual Exclusion Remains $19,000: For 2026, the federal gift tax annual exclusion amount will remain at $19,000 (a combined $38,000 for a married couple). The annual exclusion is the amount an individual can gift per recipient per calendar year without using any lifetime exclusion amounts or paying gift tax.
- Federal Tax Rates for Estates and Trusts Unchanged:
- The highest federal estate tax, gift tax and GST tax rate remains at 40% for 2026.
- The highest federal income tax rate for estates and non-grantor trusts is 37% for 2025. This tax rate applies to taxable income over $16,250 earned in tax year 2026.
- Federal Estate Tax Portability Unchanged: The ability to transfer a decedent’s unused federal estate tax exclusion amount to the decedent’s surviving spouse by filing a federal estate tax return (referred to as “portability”) remains in effect for 2026. The period for a late portability election remains five years after the decedent’s death. If your spouse died within the last five years and this election has not been made, you should contact us about the advisability of making the election now.
- Charitable Deduction Floor: Starting January 1, 2026, taxpayers can deduct only charitable contributions that exceed 0.5% of the taxpayer’s adjusted gross income as an itemized charitable deduction. For example, for a taxpayer with $300,000 of adjusted gross income, the first $1,500 of charitable donations will not be deductible. Some clients may want to consider donating larger amounts in a single year to a donor-advised fund or other charitable vehicle to reduce the impact of this change.
- Retirement Accounts:
- Inherited IRAs: Certain beneficiaries who have an inherited pre-tax IRA must take annual required minimum distributions (“RMDs”) in 2026 if the deceased participant had reached their “required beginning date” when RMDs must commence during their lifetime—or incur penalties. Inherited Roth IRAs are subject to different rules.
- Qualified Charitable Distribution: The annual tax-free distribution that an individual over age 70 ½ may make from their IRA through a qualified charitable distribution (“QCD”) directly to a qualified charity has increased to $111,000. If the individual is over age 73, the amount will count toward their RMD. The QCD must be made directly to a charity that is a 501(c)(3) organization. The QCD amount is not considered as part of the taxpayer’s taxable income.
- Catch-up contributions: For 2026, individuals with earned income greater than $150,000 and who are eligible to make catch-up contributions must make any catch-up contribution to their qualified retirement account (but not IRA) as a Roth contribution. As a result, the contribution will not reduce income in the year it is earned, but the contribution will grow income-tax free.
- Participants with qualified retirement accounts: For non-Roth accounts, the required beginning date for starting RMDs is April 1 of the year after you attain age 73 (if you were born in 1951 or later). Roth accounts in 401(k) and 403(b) plans do not have a pre-death RMD requirement. You should contact your plan administrator or financial advisor regarding how these and other changes impact you and how to compute your RMDs for 2026.
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