What Does the $15 Million Estate Tax Exemption Mean for Alabama Families in 2026?

For years, estate planning attorneys and their clients watched the federal estate tax exemption with uncertainty. The increased exemption established by the 2017 Tax Cuts and Jobs Act was scheduled to expire at the end of 2025, which would have dropped the exemption from nearly $14 million per person back to roughly $5 million.

That uncertainty has been resolved. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently increased the federal estate and gift tax exemption to $15 million per person, effective January 1, 2026. This is a significant development for Alabama families engaged in estate planning, and it creates both opportunities and considerations that should not be overlooked. 

Understanding the New $15 Million Exemption

The federal estate and gift tax exemption determines how much a person can pass on to their heirs — either during life through gifts or at death through their estate — without triggering the 40% federal estate tax. As of January 1, 2026, that threshold is $15 million per individual. 

Key provisions of the new law include:

• The exemption is $15 million per person, with annual inflation adjustments beginning in 2027
• For married couples, portability of the unused exemption continues, meaning a surviving spouse can use their deceased spouse’s unused exemption — potentially sheltering up to $30 million for a married couple
• The generation-skipping transfer (GST) tax exemption also increases to $15 million, though the portability of unused GST exemption between spouses remains unavailable
• The top marginal rate for estate, gift, and GST taxes remains at 40%
• The annual gift tax exclusion remains at $19,000 per recipient ($38,000 for married couples making joint gifts) for 2026
• The increased exemption does not have an expiration date, providing long-term certainty for estate planning

What This Means for Most Alabama Families

For the vast majority of Alabama families, the $15 million exemption means that federal estate taxes are not a concern. Estates valued below $15 million for individuals or $30 million for married couples will pass to heirs free of federal estate tax.

However, that does not mean estate planning is unnecessary. Estate planning is about much more than avoiding taxes. A well-crafted estate plan addresses:

• Who will make financial decisions if you become incapacitated (through a durable power of attorney)
• Who will make medical decisions on your behalf (through a living will or health care proxy)
• How your assets will be distributed and to whom (through a will or trust)
• Who will care for your minor children (through a guardianship designation in your will)
• How to avoid the time and expense of probate court

Even with the higher exemption, Alabama residents with estates that include real property, retirement accounts, life insurance, and business interests may find that their total estate value is larger than they expected. A comprehensive review with an estate planning attorney is the best way to understand your situation.

Opportunities for Higher-Net-Worth Families

For families with estates approaching or exceeding the exemption threshold, the 2026 increase creates planning opportunities that should be explored now:

• Lifetime gifting: The increased exemption allows individuals to make larger gifts during their lifetime without triggering gift tax, which can reduce the size of the taxable estate
• Irrevocable trusts: Transferring assets into irrevocable trusts can lock in the current high exemption and remove future appreciation from the taxable estate
• Generation-skipping trusts: The $15 million GST exemption allows for substantial wealth transfers to grandchildren or later generations without incurring the additional GST tax
• Portability planning: Married couples should ensure that portability of the deceased spouse’s unused exemption is properly elected on the first-to-die estate tax return

Because the new exemption does not have an expiration date, families have more certainty for long-term planning. However, tax law can always change with future legislation, so taking advantage of current provisions is generally advisable.

Alabama-Specific Considerations

Alabama does not impose a separate state estate tax or inheritance tax, which is favorable for residents of the state. This means Alabama families only need to plan around the federal estate tax threshold.

However, Alabama’s probate process can be time-consuming and expensive if proper planning is not in place. Key Alabama-specific estate planning tools include:

• Last will and testament: The foundation of any estate plan under Alabama law
• Durable financial power of attorney: Allows a trusted person to manage your finances if you become incapacitated
• Living will (advance directive): Communicates your wishes about medical treatment and end-of-life care
• Beneficiary designations: Ensuring that retirement accounts, life insurance policies, and other assets have up-to-date beneficiary designations — this is one of the most frequently overlooked elements of estate planning

The Harris Firm helps Alabama families create and update estate plans that reflect current federal and state law. Whether your estate is straightforward or complex, we can help ensure your wishes are protected. Contact us at (205) 201-1789 to schedule a consultation.

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