Recent estate planning tax and inheritance updates center on one headline change: the One, Big, Beautiful Bill Act, signed July 4, 2025, sets the federal estate and gift tax exemption at $15 million per person starting in 2026 and eliminates the January 2026 sunset that had driven urgent gifting for years.1Congress.gov. Public Law 119-21 Around that headline, four other shifts matter for anyone doing current planning: inherited retirement account penalties are now being enforced without any grace period, FinCEN has exempted domestic entities from beneficial ownership reporting, more states accept wills signed entirely on a screen, and the annual gift and charitable distribution numbers have moved up.
The $15 Million Federal Estate and Gift Tax Exemption
Section 70106 of the One, Big, Beautiful Bill struck the temporary Tax Cuts and Jobs Act provision that would have cut the exemption roughly in half on January 1, 2026, and rewrote Section 2010(c)(3)(A) of the Internal Revenue Code to set the basic exclusion at $15 million.2Office of the Law Revision Counsel. 26 USC 2010 – Unified Credit Against Estate Tax The new figure applies to anyone who dies or makes gifts after December 31, 2025. For 2026 the amount is a flat $15 million; beginning in 2027 it adjusts for inflation each year, rounded to the nearest $10,000.
A married couple using both exemptions can transfer up to $30 million free of federal estate tax. Amounts above the exemption are taxed on a graduated scale that reaches 40 percent on the portion over $1 million after the exemption is applied.3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax
If an estate exceeds the exemption, the executor files Form 706 reporting real estate, investments, life insurance proceeds, and digital assets.4Internal Revenue Service. About Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return Estates below the threshold do not have to file unless the surviving spouse wants to preserve the unused exemption through a portability election.
The 2026 Annual Gift Exclusion
Separate from the lifetime exemption, you can give up to $19,000 per recipient in 2026 without using any of your $15 million allowance or filing a gift tax return.5Internal Revenue Service. Gifts and Inheritances Married couples can combine their exclusions to give $38,000 per recipient. Gifts to a non-citizen spouse have a higher annual exclusion of $190,000. Anything above these limits counts against your lifetime exemption and requires Form 709.
Step-Up in Basis Still Matters Below the Exemption
Most estates now sit well under $15 million, but the tax question that touches almost every inheritance is basis. Under Section 1014, the cost basis of inherited property resets to fair market value on the date of the owner’s death.6Office of the Law Revision Counsel. 26 USC 1014 – Basis of Property Acquired From a Decedent If a parent bought stock for $20,000 and it was worth $200,000 at death, the heir’s basis becomes $200,000, and an immediate sale triggers no capital gains tax.
The step-up applies to property passing through a will, direct inheritance, or a revocable trust where the grantor kept the power to alter or revoke. Assets in an irrevocable trust, where the grantor gave up control, do not qualify because the IRS does not treat them as part of the decedent’s estate for basis purposes. Retirement accounts such as IRAs and 401(k)s are also excluded, because withdrawals are treated as income the decedent earned but never collected.
State law shapes the outcome for married couples. In community property states, when one spouse dies the entire value of community assets gets a full step-up, including the surviving spouse’s half. In common law states, only the deceased spouse’s ownership share is stepped up. On a $500,000 asset with a $100,000 original basis, a surviving spouse in a community property state gets a new basis of $500,000, while a surviving spouse in a common law state holding joint tenancy gets a basis of roughly $300,000.
Portability: The Deadline That Can Cost You Millions
When one spouse dies without using their full exemption, the survivor can claim the leftover through the Deceased Spousal Unused Exclusion (DSUE). Portability is not automatic. The executor must file Form 706 even when the estate is too small to owe any tax.7Internal Revenue Service. Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
The standard Form 706 deadline is nine months after the date of death, with a six-month extension available. Estates that are not otherwise required to file may use a simplified late-election procedure within five years of the date of death. Miss those windows and the unused exemption is gone permanently. With the exemption now at $15 million, the amount potentially forfeited is substantial. Only estates of U.S. citizens and residents are eligible.
Inherited Retirement Accounts: Penalties Are Now Being Enforced
The rules for inherited IRAs and 401(k)s have been unsettled since the original SECURE Act in 2019. Treasury published final regulations in July 2024, and 2026 is the first full year with no more IRS grace periods.8Federal Register. Required Minimum Distributions
How the 10-Year Rule Actually Works
Most people who inherit a retirement account from someone who died after 2019 must empty it by the end of the tenth year following the year of death. Whether annual withdrawals are also required during those ten years depends on the age of the original owner at death.
If the account owner had already reached their required minimum distribution start date, the beneficiary must take annual distributions in years one through nine, calculated using the beneficiary’s life expectancy, and drain whatever remains by the end of year ten. If the owner died before their RMD start date, the beneficiary can take distributions in any pattern, so long as the account is fully emptied by the ten-year deadline.
Who Can Still Stretch Distributions
A narrow group of “eligible designated beneficiaries” can still spread distributions over their own life expectancy rather than following the 10-year rule:
- Surviving spouses, who can also roll the account into their own IRA or treat it as their own.
- Minor children of the account owner, until they reach the age of majority; the 10-year clock then starts.
- Disabled or chronically ill individuals, as defined under federal tax law.
- Beneficiaries no more than 10 years younger than the deceased account owner.
Adult children, grandchildren, and most other heirs fall under the 10-year rule. Trusts or estates that inherit retirement accounts can face an even shorter five-year window if the owner died before their RMD start date.
The Grace Period Has Ended
From 2021 through 2024, the IRS waived the 25 percent excise tax that applies when a beneficiary fails to take a required distribution.9Office of the Law Revision Counsel. 26 US Code 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans That relief is over. Starting with the 2025 tax year, the penalties apply in full. If you inherited an IRA from someone who died after 2019 and that person had already been taking RMDs, check whether you owe annual distributions now. The penalty is 25 percent of the shortfall, reduced to 10 percent if you correct it within two years.
Two Newer Planning Options Worth Knowing
529-to-Roth Rollovers
SECURE Act 2.0 lets families move unused 529 college savings into a Roth IRA for the same beneficiary, for distributions made after December 31, 2023. The lifetime cap is $35,000 per beneficiary, and annual transfers cannot exceed the Roth IRA contribution limit for the year. The 529 account must have been open for at least 15 years, and contributions made within the five years before the rollover, along with their earnings, are ineligible. The transfer must go directly from the 529 plan to the Roth IRA as a trustee-to-trustee transfer.10Internal Revenue Service. Publication 590-A (2025), Contributions to Individual Retirement Arrangements Because the annual contribution ceiling limits how fast the $35,000 lifetime cap can be used, families with overfunded 529 accounts should begin the process early.
Qualified Charitable Distributions
If you are 70½ or older, you can direct up to $111,000 in 2026 from a traditional IRA to a qualifying charity as a qualified charitable distribution. The amount goes directly to the charity and is excluded from your taxable income, which typically produces a better tax result than taking the distribution and claiming a charitable deduction. SECURE Act 2.0 also allows a one-time QCD of up to $55,000 to fund a charitable gift annuity, which counts toward the overall $111,000 annual limit. Both figures are now indexed for inflation.
Electronic Wills and Remote Notarization
The Uniform Electronic Wills Act, drafted by the Uniform Law Commission, permits wills to be created, signed, and witnessed entirely in digital form. As of 2024, seven states plus the District of Columbia and the U.S. Virgin Islands have enacted versions of the Act. Under the Uniform Act, an electronic will must be readable as text and signed electronically by the testator and at least two witnesses, and it must be stored in a tamper-evident format that shows any changes made after execution.11Kentucky Legislative Research Commission. Uniform Electronic Wills Act
Remote Online Notarization lets a notary verify identity through live audio-visual technology instead of requiring everyone in the same room.12American Land Title Association. Checklist for Conforming Laws Related to Remote Online Notarization Courts in adopting states are beginning to accept electronically executed documents as originals in probate, provided the technical requirements are met.
The Uniform Act includes an optional “harmless error” provision letting courts validate a will that does not perfectly meet every execution requirement, if there is clear and convincing evidence it reflects the testator’s actual intent. Not every adopting state includes that provision, so whether a small technical defect is fatal still depends on where you live.
Corporate Transparency Act: Domestic Entities No Longer File
The Corporate Transparency Act caused real anxiety for anyone whose trust owned an LLC. That concern has largely dissolved. In March 2025, FinCEN published an interim final rule exempting all domestic entities from beneficial ownership information reporting.13FinCEN. Beneficial Ownership Information Reporting The rule redefines “reporting company” to include only entities formed under foreign law that have registered to do business in a U.S. state or tribal jurisdiction.
Domestic LLCs, corporations, and similar entities, whether held in trust or not, no longer file BOI reports. FinCEN has also said it will not enforce penalties or fines against U.S. citizens or domestic reporting companies for any period. Foreign entities registered to do business before March 26, 2025, had a filing deadline of April 25, 2025; those registering after that date have 30 calendar days from the effective date of their registration.
The underlying statute at 31 U.S.C. 5336 remains on the books, and the interim rule could be revised.14Office of the Law Revision Counsel. 31 US Code 5336 – Beneficial Ownership Information Reporting Requirements A FinCEN final rule is expected later in 2026, and it is worth watching whether the domestic exemption survives or narrows. For now, the vast majority of trusts and domestically formed entities have no federal beneficial ownership reporting obligation.