The great wealth transfer: how to give — and inherit — without losing it to tax
Under current law, few families owe federal estate tax. The real losses come from timing — what you give, when you give it, and what heirs do in the months after a death.
Key takeaways
- Under current law, few families owe federal estate tax — the exemption is $15 million per person from 2026, indexed.
- Basis often matters more: gifts carry your basis, while assets held until death generally step up.
- Beneficiary forms and titling override good intentions. Review them after every life event.
- Heirs face clocks: nine months for disclaimers and portability, 10 years for most inherited IRAs.
The short answer
Under current law, most families won’t owe federal estate tax: the exemption is $15 million per person from 2026, indexed for inflation. The bigger losses usually come from timing — gifting low-basis assets and giving up the step-up, stale beneficiaries and titling, and heirs who empty an inherited IRA in one high-income year. Decide which assets to give, which to hold, and when.
When to act
Now
Review beneficiaries, titling and documents after any marriage, birth, move, funding round or sale. Stale forms override good intentions.
By December 31, each year
Annual-exclusion gifts run on the calendar year. An unused year doesn’t carry forward.
Within 9 months of a death
The estate tax return that elects portability of a spouse’s unused exemption, and any qualified disclaimer, are generally due.
Within 10 years
Most non-spouse heirs must empty an inherited IRA — and some must also take annual withdrawals along the way.
The estate tax isn’t most families’ biggest risk
Under the One Big Beautiful Bill Act, the federal estate and gift tax exemption is $15 million per person from 2026, indexed for inflation, with no scheduled sunset. A married couple can effectively use both spouses’ amounts — but only if portability is elected on an estate tax return filed after the first death. Above the exemption, the top federal rate is 40%. California has no state estate or inheritance tax.
So for many families, the money is lost elsewhere: a low-basis asset gifted when it could have been held for the step-up, a beneficiary form from three jobs ago, an inherited IRA emptied in one high-income year, or a family home reassessed under Prop 19. Those are income-tax, titling and property-tax problems. Each one runs on a clock.
The exemption is also “permanent” only until Congress changes it. A plan that works under today’s rules and still holds up if they change is worth more than a rush to use every dollar.
Giving: what you give matters as much as when
Each year you can give up to the annual exclusion — $19,000 per recipient in 2026 — without using any lifetime exemption. The window is the calendar year. Larger gifts draw on your lifetime exemption and generally require a gift tax return.
The catch is basis. A gift carries your cost basis to the recipient. An asset held until death generally steps up to its value on that date, which can erase the built-in gain for your heirs. That makes the choice of asset a timing decision:
- Give assets you expect to grow, so future appreciation happens outside your estate.
- Give cash or high-basis assets when the gift is about the amount, not the growth.
- Hold very low-basis assets for the step-up when the estate tax isn’t the constraint.
- Give appreciated assets to charity — directly, or through a donor-advised fund or charitable remainder trust — when giving is already your goal.
For founders and equity holders, the calendar matters more
The value of a gift is set on the date of the gift. Shares given before a priced round or an exit can use far less exemption than the same shares after — typically supported by a qualified appraisal. Gifts made once a deal is effectively done can be challenged, so the window usually closes earlier than people expect.
Gifted QSBS generally keeps its status and holding period in the recipient’s hands, and in some cases gifts to separate non-grantor trusts can add per-taxpayer caps. The rules are strict and the structures draw scrutiny; see QSBS & founder exits for how the clock works.
An illustrative example
A hypothetical parent wants to give a child $1 million and owns two holdings, each worth about $1 million: a stock bought decades ago for $100,000, and a fund bought recently for close to $1 million. Gift the old stock, and the child takes on a $900,000 built-in gain. Gift the fund, and there is almost none — while the old stock, if held until death, could step up to its value then and erase that gain for the heirs. Same gift, very different tax. Hypothetical and simplified: it assumes current law and no estate tax owed, and it ignores state rules and future market moves.
Hypothetical and simplified, for illustration only — not a prediction or a guarantee. Real outcomes depend on your facts and on current law, which can change.
Titling and beneficiaries: the quiet wins
Retirement accounts, life insurance and many brokerage accounts pass by beneficiary designation, not by your will or trust. A form that still names an ex-spouse, or leaves out a new child, overrides the rest of the plan.
In California, how a married couple holds title can change the step-up. Assets held as community property can receive a new basis on both halves at the first death; assets held in joint tenancy generally step up only on the half that belonged to the spouse who died. A revocable living trust can also keep assets out of probate. Which titling fits is a legal question — we work it through with your estate attorney so the financial plan and the documents match.
Inheriting: the clocks start on the date of death
An inheritance rarely needs fast decisions. It needs the right ones, in order.
- Document values. Date-of-death values set the new basis for most assets. Appraisals and statements from that date make later sales cleaner.
- Consider a disclaimer before you accept. A qualified disclaimer — generally within nine months, and before you take any benefit — lets an asset pass to the next beneficiary as if you never received it.
- Plan the inherited IRA. Most non-spouse heirs must empty it within 10 years, and some must take annual withdrawals too. Spreading withdrawals across lower-income years, rather than stacking them on a big bonus or vest, can reduce the total tax.
- Check Prop 19 on California property. Generally, only a family home that a child makes their primary residence can keep part of the parent’s lower assessed value, and there are filing deadlines. Other inherited property is usually reassessed to market value.
Where the advanced moves fit
Above the exemption — or when an estate is growing toward it, often after a liquidity event — trusts do the heavier lifting. Spousal lifetime access trusts, grantor retained annuity trusts and sales to grantor trusts are common ways to move future growth out of an estate while keeping some flexibility. Each has trade-offs in control, income tax and cost.
Order matters. The same trust funded before a liquidity event can do far more than one funded after it, and a gift that saves estate tax can cost more in capital-gains tax if it gives up the step-up. We model those trade-offs alongside your income-tax plan and coordinate with your CPA and your estate attorney, who prepares the documents.
Common questions
Will my family owe federal estate tax?
Most families won’t under current law. From 2026 the exemption is $15 million per person, indexed for inflation, and a married couple can effectively combine both amounts if portability is elected on an estate tax return after the first death. Estates above that face a top federal rate of 40%. California has no estate or inheritance tax. Congress can change these rules.
Is it better to give assets now or leave them at death?
It depends on the asset. Gifts carry your cost basis to the recipient; assets held until death generally step up to their value then. Giving growth assets early can shrink a taxable estate, while holding very low-basis assets can save your heirs capital-gains tax. For many families it’s a mix, timed around liquidity events.
I just inherited. What should I do first?
Very little, quickly. Document date-of-death values, check whether a disclaimer makes sense before accepting anything (the window is generally nine months), and build a withdrawal plan for any inherited IRA before taking money out. If there’s California property, check the Prop 19 deadlines. Then coordinate with your CPA and the estate’s attorney.
Plan the transfer before the clock starts.
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The strategy behind this answer.
Estate, Legacy & Inheritance
Pass on more, inherit well — titling and timing first.
Keep reading.
A tax-smart withdrawal order — and why the low-bracket years before RMDs and Social Security are worth planning around.
Ordinary income at vesting, capital gains after — and why your withholding is often too low before the vest date.
Educational only. This article is general information, not tax, legal or investment advice. It reflects federal and California rules as of September 2026, which are subject to change; any figures are illustrative and hypothetical, not a guarantee of results. Estate documents should be prepared by a licensed estate attorney — consult your CPA and attorney before acting.