If you’ve put off reviewing your estate plan because you weren’t sure which way federal tax law was headed, the wait is over. On July 4, 2025, Congress passed the One Big Beautiful Bill Act (OBBBA), permanently resetting the federal estate and gift tax exemption — and the change took effect January 1, 2026. For families across our Maryland, DC, and Virginia communities, that means the planning conversation has shifted. Here’s what actually changed, and why “no federal tax” doesn’t automatically mean “no tax at all.”
The New Federal Exemption: $15 Million, and It’s Permanent
Beginning January 1, 2026, every individual can pass up to $15 million — and married couples up to $30 million using portability — free of federal estate and gift tax. Unlike the 2017 Tax Cuts and Jobs Act exemption it replaces, this one has no scheduled sunset. Starting in 2027, the amount will adjust annually for inflation. The federal rate on anything above the exemption remains 40%.
For most families across the country, this removes federal estate tax from the conversation entirely. But for families in our region, the story doesn’t end there.
Why “No Federal Tax” Doesn’t Mean “No Tax” in Maryland
Maryland is one of only twelve states (plus DC) that still levies its own estate tax — and Maryland’s exemption has not moved with the federal number. It remains $5 million per person ($10 million per married couple, using Maryland’s own portability election), with no inflation adjustment built in. That creates what estate planning attorneys are now calling “the $10 million gap”: an estate worth, say, $9 million owes nothing to the IRS but can still face a Maryland estate tax bill, with rates climbing as high as 16% on the portion above the exemption.
Maryland is also the only state in the country that layers an inheritance tax on top of its estate tax. The good news: spouses, children, grandchildren, parents, and siblings are exempt from that inheritance tax, and Maryland imposes no gift tax — which makes lifetime gifting a genuinely useful planning tool for families approaching the state threshold.
The District of Columbia
DC also imposes its own estate tax, separate from the federal system, with an exemption set well below the new $15 million federal level. One important distinction from Maryland: DC does not allow portability between spouses, so each spouse’s exemption must be used on its own estate, not transferred to the survivor. That makes proactive trust planning — rather than relying on the surviving spouse’s exemption alone — especially important for DC residents.
Virginia: A Different Picture
Virginia does not impose a separate state estate tax, so Virginia families benefit directly from the higher $15 million federal threshold without a state-level gap to plan around. That said, federal portability still requires a timely filed estate tax return to claim a deceased spouse’s unused exemption — so even “no state tax” families shouldn’t assume no paperwork is needed.
What This Means for Your Existing Plan
If your will, trust, or power of attorney was drafted with the old exemption numbers in mind, it’s worth a second look — particularly if:
- Your trust documents use a formula tied to “the federal estate tax exemption amount,” which has now changed dramatically and could redirect assets in ways you didn’t intend.
- You’re a Maryland or DC resident with a combined estate (including life insurance and retirement accounts) approaching $5 million.
- You made large lifetime gifts under the prior exemption and want to know how much exemption capacity you have left under the new $15 million figure.
- Your plan relies on a credit shelter or A/B trust structure built around exemption levels that no longer reflect current law.
The federal annual gift tax exclusion also rose to $19,000 per recipient in 2026 ($38,000 for a married couple giving jointly) — a simple, often underused way to move wealth to the next generation each year without touching your lifetime exemption at all.
Plan With Clarity, Not Guesswork
For years, estate planning conversations were dominated by uncertainty about whether the exemption would fall sharply in 2026. That uncertainty is gone. What’s left is a clearer, more permanent framework — but one that still requires a plan tailored to where you live, what you own, and who you want to protect.
At Life & Legacy Counselors, we believe building strong communities starts with helping individual families get this right. If it’s been more than a year or two since your plan was reviewed — or if you’ve never had one drafted at all — now is the moment to act on the clarity this new law provides.
Ready to see how the 2026 changes affect your plan?
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