The $15 Million Question: What the New Estate Exemption Means for Your Family

A colleague forwarded me the headline last month with a one-line message: "Guess we're fine now." He was referring to the new $15 million federal estate and gift tax exemption, effective January 1, 2026 under current federal law, with no scheduled sunset in the statute. His practice, his real estate, his investment accounts. All in, somewhere around $8 million. Comfortably under the federal line. He felt like he'd been let off the hook.

He hadn't read past the headline.

Most surgeons in his position are having the same reaction right now, and it's the reasonable one to have. For over a decade, estate planning conversations were dominated by a ticking clock: under prior law, the exemption was scheduled to be cut roughly in half at the end of 2025. That threat is gone. The exemption didn’t just survive, it went up, and under current law there is no scheduled sunset provision.

But “permanent” in a statute doesn’t mean untouchable. It means the planning question changed shape, and most surgeons haven’t noticed the shift yet.

Reason one: your state didn’t get the memo

As of 2026, twelve states plus Washington, D.C. levy their own estate tax, with exemptions far below the current federal number. Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington all tax estates that clear a much lower bar than $15 million. Several states (including Kentucky, Nebraska, New Jersey, Pennsylvania, and Maryland) impose an inheritance tax on top of or instead of an estate tax.

For 2026, Oregon’s estate tax exemption is $1 million. Massachusetts is $2 million. New York’s basic exclusion amount is $7.35 million, and some of these figures are indexed and may change over time. A surgeon who is “under the federal line” by $7 million can still be fully exposed at the state level. The federal headline says nothing about what your state actually does.

Reason two: New York’s exemption comes with a trapdoor

Here’s where it gets interesting, and where most of the coverage of the new exemption stops short. New York doesn’t just tax the amount over its exemption. If your taxable estate exceeds the basic exclusion amount by more than 5%, the effective benefit of that exclusion phases out and then disappears entirely, and the state tax can apply to the full estate.

For 2026, that means anything over $7,717,500 (105% of the $7.35 million exclusion) falls off what estate attorneys call the cliff. A surgeon in New York with an estate just below that level may face a state estate tax bill in the low six figures. Push the estate modestly above the cliff and the calculation can jump into the mid–six–figure range, even though the size of the estate only increased by a relatively small amount. That kind of jump is not a rounding error. It’s the sort of number that should change how you think about a life insurance policy, a piece of real estate, or a year‑end gift if you’re anywhere near that line.

Reason three: the old gifting strategy might need a second look

For years, many high‑net‑worth individuals whose estates were near the old, lower exemption worked with advisors to implement aggressive gifting strategies: moving assets out of the estate before the exemption dropped and the window closed. Irrevocable trusts got funded. Assets got retitled.

Now that the exemption is higher under current law, some of those trusts may, depending on the client’s asset mix and net worth, reduce income-tax efficiency by forfeiting a step-up in cost basis without significantly reducing estate tax exposure. Assets that stay in your estate until death generally receive a step‑up in basis, meaning your heirs inherit them at today’s value with no embedded capital gains tax. Assets moved into an irrevocable trust years ago often don’t get that step‑up. If the trust was built to dodge an estate tax that, for many surgeons, is no longer a realistic threat, you may be paying to avoid a tax you were unlikely to owe, while giving up a tax benefit you didn’t realize you had.

This is worth a specific conversation with your estate planning attorney, tax advisor, and whoever helped design your trust structure. The reason has nothing to do with whether the trust was a mistake. The law it was built for changed, and the structure deserves a second look under the law as it stands today.

Reason four: permanent is a word, not a guarantee

The exemption is “permanent” under current law. Current law is not the same thing as unchangeable law. Congress has rewritten this exact provision before. A future Congress, facing a different fiscal picture and political environment, can rewrite it again. Structuring your estate as if today’s number is fixed forever is a bet, not a plan.

One planning tool some high‑net‑worth individuals consider for illiquid estates (practice equity, real estate, deferred compensation) is an irrevocable life insurance trust (ILIT). When properly structured, an ILIT can provide liquidity outside the taxable estate to help pay estate taxes or equalize inheritances, even if the exemption changes. ILITs involve legal and tax complexities and are not appropriate for every situation, so they should be evaluated carefully with your advisors.

What actually changed, and what to do about it

The higher exemption is genuinely good news. It removes a deadline that used to force rushed decisions. But it replaced urgency with something more dangerous for a busy surgeon: the appearance that the work is done. It isn’t. The work simply shifted from “beat the deadline” to “check the state exposure, check the basis math, check whether your trust still does what you think it does.”

You didn’t build a practice by assuming the easy explanation was the whole story. The same instinct applies here. Read past the headline.

Financial planning is not about growing your bank account; it’s about increasing the quality of your life, and for most surgeons, a meaningful part of that quality of life is knowing what you’ve built will land where you intend it to. That’s not a number on a form. It’s control, extended one generation further than you’ll personally see.

Capably Yours,

Jared

DISCLAIMER

This article is for informational and educational purposes only and does not constitute investment, tax, or legal advice. It does not take into account the specific objectives, financial situation, or needs of any particular person. You should consult your own tax, legal, and investment professionals before acting on any information contained herein. Capable Wealth, a New York registered investment adviser, provides advisory services only where properly licensed or exempt from licensing.