The One Big Beautiful Bill Act (OBBBA) raised the federal estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per individual, effective January 1, 2026, eliminating the reduction scheduled by the Tax Cuts and Jobs Act (TCJA) for that same date.
Trusts funded and gifts completed between 2022 and 2025 to beat that sunset all still stand. What deserves attention now are the valuations and basis positions underneath them, because the 2026 estate tax exemption rules changed the math those transfers were designed around.
For four years, estate planning attorneys, wealth advisors, and CPAs organized their advice around avoiding precisely this outcome, shifting planning volume heavily toward irrevocable trusts, lifetime gifting, and valuation discounts to lock in exemption before an anticipated drop to roughly half its prior level.
The drop never came, which leaves a specific question for anyone who did that work. In a plan built for a reduction that didn’t happen, which decisions were driven by the deadline rather than the family’s actual objectives, and do the appraisals behind them still serve where the family stands today?
Why So Many Estate Plans Were Built Around a Sunset That Never Arrived
When the TCJA doubled the federal exemption in 2017, it wrote the expiration into the statute, scheduling a reversion to the pre-TCJA base amount, adjusted for inflation, on January 1, 2026. Congress left that reversion untouched for eight years, and by 2022, with the window closing and no legislative fix in sight, most practitioners had stopped treating the sunset as a distant possibility and started treating it as the planning baseline.
What followed was a sustained wave of large irrevocable trust funding, with spousal lifetime access trusts, grantor retained annuity trusts, irrevocable life insurance trusts, and dynasty trusts funded on a use-it-or-lose-it basis, alongside outright gifts sized to whatever exemption was available that year.
Nearly all of it rested on appraised values, since interests in operating businesses, real estate partnerships, and family holding entities were valued with discounts for lack of control and lack of marketability, so families could move as much underlying value as possible within the exemption then available. It was well-executed work aimed at a target that has since moved.
What the 2026 Exemption Rules Actually Say
In its annual inflation adjustment release, the IRS confirmed that estates of decedents dying during 2026 have a basic exclusion amount of $15,000,000, up from $13,990,000 in 2025, which, through portability, shelters up to $30 million for a married couple. The amount carries no scheduled expiration and will continue to be indexed for inflation.
Set that against the reversion and the gap is roughly two to one, since Tax Foundation, a nonpartisan tax policy research organization, estimated the exemption was on track to fall by about 50 percent, from roughly $14 million in 2025 to about $7.1 million in 2026.
Arnold & Porter’s advisory describes the same mechanic, a reversion to the pre-TCJA $5 million base adjusted for inflation, though the IRS never published an official reverted figure because the sunset never took effect.
None of this touched state-level exposure, which is where a fair number of families still have a problem. Tax Foundation’s state-by-state tracker counts twelve states plus the District of Columbia levying their own estate tax and five states levying an inheritance tax, several with thresholds far below $15 million. Because of it, a family in New York, Massachusetts, or Washington may have watched its federal exposure disappear while its state exposure stayed exactly where it was.
What made advisors comfortable gifting at scale through this period was the IRS’s anti-clawback regulations, finalized in 2019, which confirmed that the exemption used during the elevated period would not be retroactively taxed if the exemption later decreased. That protection went unused this time, but it remains the right frame for future legislative risk, since permanence in tax law means only that no expiration date currently sits on the calendar.
Why Some Pre-2026 Transfers Deserve a Second Look
The Original Discounts May Not Fit Where the Family Stands Now
Appropriate discounts taken on fractional interests, family limited partnership units, and minority stakes were ideal to move the maximum supportable value through a closing window. That is a meaningfully different design goal from optimizing a family’s position over the next twenty years, and an appraisal built to answer the first question will not necessarily answer the second.
There is also an examination risk that hasn’t expired. Gift tax returns reporting those transfers generally remain open to IRS review after filing, and that period does not begin to run unless the transfer was adequately disclosed on the return. Since inconsistent discounting across a series of related transfers is a familiar examination trigger, confirming the original methodology holds up on its own terms is worth doing regardless. And where the family’s objective has since shifted toward managing income tax and basis outcomes, the review has to test that methodology against the new objective, not the one it was built for.
The Basis Step-Up Trade-Off May No Longer Pay Off
Every transfer into an irrevocable trust involved an explicit trade. Assets held outside the taxable estate do not receive a step-up in basis at the grantor’s death, while assets retained in the estate do, and accepting that cost made sense when estate tax exposure was the dominant risk. At $15 million per individual, and $30 million for a married couple using portability, a meaningful share of the families who rushed to fund trusts between 2022 and 2025 no longer face federal estate tax exposure at all.
For those families, the trade has inverted, and appreciated low basis assets sitting in an irrevocable trust can now produce a capital gains bill for the next generation larger than the estate tax the transfer was built to avoid. The further those assets appreciate, the wider the gap grows. The planning was competent and did what it was asked to do, but for some of these families, the question it answered is no longer the one that matters.
A Swap Back Into the Estate Needs a Fresh Appraisal
There is often a way to fix this without unwinding anything because many grantor trusts include a substitution power, commonly called a swap power, that allows the grantor to reacquire trust assets by exchanging other property of equivalent value. Used deliberately, it can pull low-basis appreciated assets back into the taxable estate and restore eligibility for a step-up at death, which, for a family well under the $15 million threshold, can be worth a great deal.
Execution is where these transactions succeed or fail. Equivalent value is the operative requirement, and satisfying it takes a current, defensible appraisal of both sides of the exchange rather than a rough estimate or a number carried forward from the original transfer. If the estate is later examined, the substitution is exactly the kind of transaction the IRS scrutinizes closely, and a swap supported by a thin or self-serving appraisal can unwind the basis-planning it was meant to accomplish while creating a taxable gift nobody intended.
A Practical Review Checklist for Advisors and Clients
For clients who funded irrevocable trusts or made substantial gifts between 2022 and 2025, five questions are worth walking through directly.
- Do the valuations behind those transfers remain defensible, and do they fit the family’s current objectives rather than only the objective in place at the time?
- Does the roughly $1.01 million increase in the per-person exemption from 2025 to 2026, plus any exemption never used, create room for additional gifting, and what appraisals would support it?
- Do the GST allocations made during that rush still match the family’s generation-skipping goals now that the ceiling is both higher and permanent?
- Do formula or defined-value clauses in prior documents still produce the intended split between trusts and a surviving spouse against a $15 million figure rather than the smaller one many drafters assumed?
- Should basis planning now take priority over further estate tax minimization for clients no longer near the taxable threshold?
Where an Independent Valuation Fits From Here
Removing the deadline did not correct any of the valuation, basis, or allocation decisions made under it. Permanence in the statute says nothing about whether a plan built in anticipation of the opposite outcome remains the right plan, and in many cases, the honest answer is that the original structure continues to serve the family well, and the file can be closed with that conclusion documented. Reaching it on current information is the part that matters.
About Appraisal Economics
Appraisal Economics has appraised business interests, closely held entities, complex securities, real estate, and intangible assets for gift and estate tax purposes since 1989, with a team that includes CFAs, CPAs, ASAs, certified appraisers, and finance professors. Our estate planning valuations support transfers that are examined by the IRS and, when necessary, litigated. Because we are a pure play firm providing valuation services and nothing else, no audit practice, tax practice, or banking relationship sits on the other side of an engagement to shape the conclusion, which is perhaps one reason the IRS itself has retained us to review third-party appraisals and provide expert testimony.
If you are looking at a trust, a gift made under the 2026 estate tax exemption rules or in the years leading up to them, or a swap that needs a current and defensible appraisal, contact our team to talk through the specifics.