Why 'Permanent' Is the Most Dangerous Word in Estate Planning: A Financial Planner's Take
Higher estate tax exemptions may be presented as "permanent," but relying on tax rules to stay the same is risky. So it's essential to regularly update your estate plan to account for changing laws, state taxes and outdated trust formulas.
The most dangerous word in American estate planning is "permanent."
Congress used it last summer when it enacted the One Big Beautiful Bill Act (OBBBA), and every planning practice in the country quietly lost its sense of urgency in the days that followed.
The relief was understandable. For much of the preceding three years, the profession had operated under a deadline: The doubled estate exemption in the Tax Cuts and Jobs Act (TCJA) was scheduled to sunset at the end of 2025, and families with substantial wealth were counseled — correctly, under the law at the time — to compress years of transfer planning into a matter of months.
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Then the deadline evaporated — and with it, for many families, the last practical motivation to reopen the estate binder.
The deadline that never came
On July 4, 2025, President Donald Trump signed the OBBBA into effect, setting the estate, gift and generation-skipping transfer tax exemption at $15 million per individual for 2026, or $30 million for married couples — up from $13.99 million and $27.98 million, respectively, in 2025.
It also provides for inflation adjustments beginning in 2027 using 2025 as the base year. The top federal rate remains 40%.
The 2026 annual gift exclusion for 2026 is $19,000.
Since the OBBBA took effect, for the great majority of Americans with substantial wealth — households with net worth between roughly $5 million and $30 million — the federal estate tax has effectively receded as a planning concern.
Why 'permanent' is a dangerous word
"Permanent," in tax legislation, is a term of art. It signals that Congress has chosen not to include a scheduled expiration in the statute — nothing more.
A future Congress remains free to revise the number at any time, and the historical record suggests it does so with regularity.
In 2001, the federal estate tax exemption stood at $675,000. By 2002, it had risen to $1 million. In 2009, it reached $3.5 million. In 2010, the estate tax was briefly repealed altogether, then reinstated at $5 million in 2011.
The TCJA doubled that figure to $11.18 million in 2018, and it drifted upward with inflation being lifted it to its current level.
Against that record, "permanent" is a description of legislative posture, not of statutory reality.
The behavioral response most families adopt on hearing the word — read the news, exhale, close the binder — is precisely the wrong one.
Four questions your documents need to address now
1. Does your existing plan still function when the exemption rises rather than falls?
Many trusts drafted during the preceding decade contain formula clauses — provisions that automatically allocate assets between a credit-shelter share and a marital share based on the exemption in effect at the first spouse's death.
A formula written to divide an estate at a $5 million or $7 million threshold behaves very differently at $15 million.
In some drafting patterns, the credit-shelter share now consumes nearly the entire estate and starves the surviving spouse's marital share. In others, the reverse occurs.
Neither outcome may reflect what the family intended when the documents were signed.
The remedy is unglamorous: Read the formula language, model the outcome under current law and amend or restate where the mechanics no longer serve the intent.
2. How should appreciated assets in your estate be handled?
This question inverts a decade of planning orthodoxy. Under the pre-OBBBA regime, the arithmetic favored removing appreciated assets from the estate — through gifts, sales to intentionally defective grantor trusts or grantor retained annuity trusts — to avoid a 40% estate tax that would otherwise apply.
That calculus was often correct. Under a permanent $30 million exemption, it frequently is not.
For families comfortably beneath the threshold, retaining appreciated assets in the estate captures the basis step-up permitted at death, which eliminates embedded capital gain from a lifetime of appreciation.
A 23.8% federal capital gains rate applied to decades of unrealized growth can now exceed the estate tax cost of holding the asset — often by a substantial margin.
The old default of "give it away" deserves a fresh calculation.
3. What impact will state estate or inheritance taxes have?
Several states levy their own estate tax at thresholds far below the federal exemptions, and additional jurisdictions impose inheritance tax on the recipient rather than the estate.
- Oregon begins taxation at $1 million
- Massachusetts at $2 million
- Washington at approximately $3 million
- New York at $7.35 million, with a distinctive cliff at 105% of exemption above which the entire estate becomes taxable from the first dollar
Our practice, Palmer Wealth Group, (I am the CEO), is based in Texas, which imposes no state estate tax, a genuine planning advantage for its residents.
But the analysis rarely stays clean. Property held in another state, family members domiciled elsewhere or a beneficiary residing in an inheritance tax jurisdiction can each trigger exposure the federal calculation misses entirely.
State thresholds change more frequently than federal, and several states index their exemptions annually. What was safe last year may not be safe this year.
4. Which trust strategies are the most tax-efficient?
This one addresses what existing trusts have quietly become. When federal estate tax was the binding constraint, the goal of an irrevocable trust was often to remove assets from the grantor's estate as efficiently as possible. Income taxation was a secondary concern. It is no longer.
Now, a trust reaches the top 37% federal income tax bracket at $16,000 of undistributed income in 2026 — a threshold a single individual does not encounter until $640,600 of taxable income.
For a trust with meaningful investment assets, the compression is severe.
Distributable net income planning, grantor-trust elections, situs selection and the choice between distributing and accumulating income each become materially more important once the estate tax rationale no longer overwhelms every other consideration.
What this review actually looks like
Taken together, these four questions form the shape of an estate plan review that has these components:
- Documentary. Retrieve the current trust and will documents and read the formula clauses aloud. The exercise is more revealing than most families expect.
- Arithmetic. Re-inventory the estate against the new estate tax threshold, separating what remains a candidate for lifetime transfer from what has quietly become a candidate for basis step-up.
- Geographic. identify every state in which the family owns real property, maintains a domicile or has significant beneficiaries and map the exposure against current state statutes.
The fourth component is coordinative — and, in some respects, it's the most difficult because estate planning, tax planning and investment management sit on three separate professional desks, plus a personal one:
- The attorney drafts the documents
- The accountant computes the return
- The adviser manages the assets
- The family too often serves as the unpaid coordinator among them
In our practice, the review typically begins with the attorney reading the formula clauses in the family's presence and ends with the accountant and the investment adviser at the same table, working from the same current inventory.
The mechanics are ordinary; the coordination is not. Its absence — not the tax code — is what most often causes an updated plan to remain uncompleted after the review begins.
Nothing in the current law prevents a future Congress from changing the exemption again. The 40% rate, the state estate tax landscape and the compressed income tax brackets that apply to trusts all remain what they were before OBBBA.
What has changed is the immediacy of the pressure to act. That change is welcome, but it should not be mistaken for a change in the underlying discipline.
Estate planning is not the practice of racing deadlines. It is the practice of building a plan that survives whatever the rules become next.
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