Tax Exemptions and Legacy Planning

About six months before historically high gift, estate, and generation-skipping exemption levels were scheduled to expire, legislation changed course. The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, made these exemption amounts permanent. Because they continue to be indexed annually for inflation, taxpayers can plan with clarity and adjust strategies to meet a wide range of legacy planning objectives.

Starting January 1, 2026, the federal estate tax exemption will rise to $15 million per person, up from $13.99 million in 2025. That doubles for married couples, meaning they can transfer up to $30 million without incurring estate taxes.

While the lifetime exemption is increasing, the annual gift exclusion will stay the same next year: $19,000 per recipient, or $38,000 for couples who combine their exclusions. Taxpayers can give to as many people as they’d like each year within these limits—without filing a gift tax return (Form 709) or using any of their lifetime exemption.

Many strategies are available to taxpayers seeking to witness their legacies in action during their lifetime. For example, frontloading up to five years of cash gifts into a 529 plan is a popular strategy among parents and grandparents. When contributed to a 529 plan, these gifts have the potential to grow and be distributed free of federal, and in most cases, state income taxes, as long as they are used for qualified education expenses as defined by the Internal Revenue Service. While account owners generally retain control over 529 accounts, these assets (and all future earnings) are excluded from the donor’s federal taxable estate.

For tax years 2025 and 2026, individuals can gift up to $95,000 per beneficiary, and a married couple can gift up to $190,000 per beneficiary. However, if you choose to accelerate five years of gifts to a 529 account in 2025, you will not be able to contribute additional money to that same account until 2030 (2031 for gifts made in 2026). December 31 is the deadline for funding a 529 plan for the current tax year.

Keep in mind, the federal exemption amounts discussed here do not affect state-level estate or inheritance taxes, which may have different thresholds. Consult with a professional tax or estate planning attorney for information about tax laws specific to your state of legal residence. In New Mexico, where our office is located, 529 contributions may be tax deductible on state tax returns, providing an added benefit. 

To learn more about this and other strategies to help shape your legacy during your lifetime, contact the office to schedule a time to talk, or schedule a time on our calendar at www.calendly.com/kfn. 

^{1) Taylor, Kelley R., “What is the Gift Tax Exclusion for 2025 and 2026?” 20 OCT 2025, Kiplinger.com, https://www.kiplinger.com/taxes/gift-tax-exclusion.
2) Ibid.}