An update to the U.S. Tax code will increase the estate exclusion amount from $13.99 million to $15 million in 2026. This exclusion will allow estates to now transfer up to $15 million without any tax liability. Additionally, married couples have a special provision called portability, which allows a surviving spouse to use any unused exclusion amount from their deceased partner’s estate.
What Is The Catch?
To claim this valuable benefit, estates must be meticulously planned, and complete estate tax returns must be filed even when no taxes are owed.
A Million Dollar Mistake: The Rowland Family
The Rowland family’s story illustrates how a minor oversight can cost millions in unnecessary taxes. When Ms. Rowland passed away in 2016, the estate tax exclusion was $5.45 million. Her estate, valued at approximately $3 million, was well below the taxable threshold. Her estate tax return properly listed her assets but did not specify the exact value of each item, including real estate properties and shares in the family’s various businesses.
This omission seemed inconsequential at the time. After all, her estate was going to her husband and when an estate’s total value falls below the exclusion threshold, detailed asset valuations are not required for tax purposes.
However, when Mr. Rowland died in 2018 with an estate worth $28 million, this oversight proved catastrophic. While the 2018 exclusion threshold was $11 million, his estate planned to use Ms. Rowland’s unused exclusion of approximately $2.45 million (bringing their combined exclusion to $13.45 million).
The IRS rejected this claim. Because Ms. Rowland’s estate tax return lacked specific asset valuations, the IRS deemed it incomplete, making her unused exclusion unavailable to her husband’s estate. This technical deficiency cost the Rowland family millions in avoidable estate taxes.
How Estate Exclusions Have Evolved
Understanding the trajectory of estate tax law helps illustrate why proper planning is more critical than ever:
- 2001: Estate tax exemption of $675,000
- 2009: Increased to $3.5 million
- 2010: Taxpayer Relief Act set maximum rate at 35% with $5 million exemption
- 2012: Exemption remained at $5 million, but tax rate increased to 40%
- 2017: Doubled exemption to approximately $10 million with inflation adjustments
- 2026: Exemption will reach $15 million for individuals ($30 million for couples)
The Bottom Line
As exclusion amounts continue to rise, the stakes for proper estate planning grow exponentially. What seems like a minor paperwork issue today could cost your heirs millions tomorrow.
Expert Guidance You Can Trust
Throughout decades of changing tax law, Casey Lundergan Burns P.C. has maintained a consistent mission: guiding Massachusetts families through comprehensive estate planning. With over 90 years of combined experience protecting families and their legacies, we understand the intricate details that can make or break your estate plan.
Don’t let a simple mistake jeopardize your family’s financial future. Schedule a consultation with our office today to ensure your estate plan is properly structured and documented. Feel free to call us at (978) 788-9934 or visit our website to connect with our team.
The information in this article is not intended as legal advice or as a substitute for personalized counsel. Please consult with a qualified attorney for advice specific to your situation.