The $15 Million Exemption Is Permanent: Why Pre-Sunset Bypass Trusts and SLATs May Now Work Against Your Clients

Key takeaways

• The exemption is now $15 million per individual, $30 million per married couple, permanent and indexed. Section 70106 of OBBBA (P.L. 119-21) amended IRC §2010(c)(3) — striking "$5,000,000," inserting "$15,000,000" — for decedents dying and gifts made after December 31, 2025. The 40% top rate under §2001(c) is unchanged, and the TCJA reversion that would have halved the exemption is repealed.
• A formula credit shelter clause now risks costing a basis step-up, not saving estate tax. Property funded into a bypass trust at the first death is excluded from the survivor's estate and receives no second adjustment under §1014. For couples under $30 million, that is a pure income-tax loss with no offsetting transfer-tax benefit.
• Pre-sunset SLATs and IDGTs may be carrying grantor-trust income-tax drag for nothing. If the gift was made to beat a cliff that no longer exists, the question is whether the structure still earns its cost — and whether decanting, modification, or grantor-trust "toggling" under the governing instrument and state law is warranted.
• Rely on the no-clawback rule and stop re-litigating completed gifts. Treas. Reg. 20.2010-1(c) (final, November 26, 2019) confirms prior gifts are not clawed back. The live question is prospective: do existing structures remain optimal at $15 million?
• A permanent $15 million GST exemption (IRC §2631(c)) reopens dynasty planning for families who held back during the years of uncertainty.

What permanence actually changed

For four years, the operating assumption in high-net-worth planning was a deadline. The Tax Cuts and Jobs Act had roughly doubled the basic exclusion amount through 2025, with a scheduled reversion to a figure near $7 million per person on January 1, 2026. The planning logic that followed was rational under that assumption: use the larger exemption before it disappeared, push assets out of the estate, and accept frictions — lost basis step-up, grantor-trust income inclusion, reduced access to transferred wealth — as the price of locking in exemption that would otherwise be wasted.

OBBBA removed the deadline. Section 70106 set the basic exclusion amount at $15 million per individual, effective for decedents dying and gifts made after December 31, 2025, indexed for inflation from a 2025 base (so the figure holds at $15 million for 2026, with the first inflation adjustment landing in 2027). The generation-skipping transfer exemption under §2631(c) tracks the same $15 million for 2026. Portability under §2010(c)(4) and (5) carries a deceased spouse's unused exclusion to the survivor, so a married couple controls $30 million in combined exemption with no trust required to capture it. The 40% rate of §2001(c) survives untouched.

The word doing the work is *permanent*. It does not mean immutable — a future Congress can legislate — but it removes the structural certainty that the exemption would fall, and with it the central justification for a generation of aggressive lifetime transfers. The result is a large installed base of structures built for a cliff that no longer exists. Most were drafted correctly for the world they were built in. The task now is to confirm they still serve the client in the world that replaced it.

The cliff is gone. The documents drafted to beat it are not — and several now optimize for a problem the client no longer has.

The formula clause is the first thing to re-read

The most common and most consequential exposure is not an exotic SLAT. It is the boilerplate funding formula sitting in a will or revocable trust executed years ago.

How a credit shelter formula goes wrong at $15 million

A traditional A/B or credit shelter design funds a bypass trust at the first spouse's death with an amount tied to the available exemption — historically phrased to move "the maximum amount that can pass free of federal estate tax" into the bypass, with the remainder qualifying for the marital deduction under §2056. The bypass trust's purpose was to use the first decedent's exemption before portability existed, and to keep that growth out of the survivor's taxable estate.

That logic is now frequently inverted. Assets that fund the bypass trust are excluded from the surviving spouse's gross estate, which is the point — but exclusion from the estate means no second step-up under §1014 at the second death. Property gets one basis adjustment, at the first death, and then carries that basis until sold, no matter how much it appreciates while the survivor lives. By contrast, assets that pass to or for the survivor in a form included in the survivor's estate take a fresh §1014 adjustment at the second death.

For a couple whose combined estate is comfortably under $30 million, there is no federal estate tax to shelter. A formula that mechanically maximizes the bypass therefore buys nothing on the transfer-tax side and surrenders a basis step-up that would have eliminated capital-gain exposure on appreciated securities, real estate, or closely held interests. The "tax-saving" clause becomes a tax-*creating* clause, payable by the children when they eventually sell.

What to look for, and what to do

Read the actual funding language. A *pecuniary* formula behaves differently from a *fractional* one, and a *Clayton* election or *disclaimer*-funded structure gives the survivor or executor post-mortem control that a mandatory formula does not. Where the documents are mandatory and the estate is well under $30 million, the planning conversation shifts toward keeping appreciated property in a form that secures a second step-up — for example, relying on portability rather than a funded bypass, or building in QTIP and disclaimer flexibility so the funding decision is made with facts in hand at the first death rather than dictated by a clause written under sunset pressure.

One drafting caution survives the repeal: §1014(e). Property gifted to a decedent within one year of death that passes back to the donor or the donor's spouse does not get a step-up. Basis-maximization strategies that route appreciated assets to a dying spouse must respect that one-year rule or the intended adjustment fails.

Reassessing SLATs, IDGTs, and other completed transfers

Spousal lifetime access trusts and intentionally defective grantor trusts were the workhorses of the sunset era. Many were funded specifically to use exemption before it dropped. With the drop cancelled, three questions follow.

First, is the grantor-trust income-tax drag still justified? A grantor trust is taxed to the grantor, who pays the trust's income tax from other assets — historically a *feature*, because it lets the trust grow tax-free and the payments are not additional gifts. But that feature was paired with a transfer-tax purpose. Where the only reason for the transfer was a deadline that no longer exists, the annual income-tax cost may now outweigh a benefit the client no longer needs. Some instruments permit the grantor-trust status to be toggled off; whether that is advisable turns on the trust terms and the client's full picture.

Second, do completed transfers need to be left alone, modified, or unwound? They do not need to be unwound for clawback reasons — see below. But a SLAT funded with low-basis assets now sits outside the estate and outside §1014, so the same basis question that haunts the bypass trust applies. Depending on state law and the instrument, decanting, non-judicial modification, or trust-protector powers may allow the trustee to address basis, distribution standards, or administrative drag without disturbing the completed gift.

Third — the recurring fear — does the no-clawback rule hold? It does. Treas. Reg. 20.2010-1(c), finalized November 26, 2019 under the authority of §2001(g)(2), provides that gifts sheltered by the higher exemption are not retroactively taxed if the exemption is lower at death. With the exemption now permanent at $15 million, the clawback scenario the regulation guards against does not even arise. Completed gifts are settled. The energy belongs on whether the *structures* holding those gifts remain optimal.

For couples under $30 million, the planning problem has changed

For a large share of high-net-worth families — those with combined estates under the $30 million couple's exemption — the federal estate tax is, for now, a non-issue. That does not mean planning is finished. It means the objective moves from transfer-tax avoidance to three other disciplines:

• Income-tax basis maximization. Engineer for the second §1014 step-up. Keep appreciated assets where they will receive it; avoid clauses that strand them outside the estate.
• Asset protection and governance. Trusts still earn their keep for creditor protection, divorce protection, special-needs planning, spendthrift control, and orderly succession of a closely held business — none of which depend on an estate-tax rationale.
• State transfer taxes. Several states impose their own estate or inheritance taxes with exemptions far below $15 million. A federal non-issue can be a meaningful state liability, and that calculus belongs in the review.

Frequently asked questions

Our wills set up a credit shelter trust years ago. Do we need to redo them?

Not necessarily redo — but re-read, now. The exposure is a mandatory funding formula that pushes appreciated assets into a bypass trust your estate no longer needs for tax purposes, costing a second basis step-up under §1014. If your combined estate is well under $30 million, ask your advisor whether a portability-based approach or added disclaimer/QTIP flexibility would better preserve basis while keeping any non-tax protections you actually want.

We funded a SLAT in 2024 to beat the sunset. Was that a mistake, and can we undo it?

It was reasonable given what was known then, and the no-clawback rule (Treas. Reg. 20.2010-1(c)) means the completed gift is safe regardless of the permanent exemption. Whether to leave it, modify it, or address its grantor-trust income-tax drag depends on the trust terms and your state's decanting and modification law. The transfer is done; the question is whether the structure around it is still the right one.

Does permanence mean we should stop estate planning?

No. It means the center of gravity moves. For most families under $30 million, the work shifts to income-tax basis management, asset protection, governance, and any state-level estate tax. For families above the exemption, the 40% rate is unchanged and active transfer planning still matters — and a permanent $15 million GST exemption reopens long-horizon dynasty trust planning that many had shelved.

Bottom line

Treat permanence as a trigger for a documents review, not a reason to relax. In the next planning cycle, pull every will and revocable trust and read the funding formula against a now-permanent $15 million per-person exemption: confirm a mandatory credit shelter clause is not over-funding a bypass trust and forfeiting a second §1014 step-up for couples under $30 million, and build in disclaimer or QTIP flexibility where it is missing. Separately, inventory pre-sunset SLATs and IDGTs and test whether their grantor-trust income-tax drag still buys anything, evaluating decanting or modification under state law where it does not. Lean on the no-clawback rule for completed gifts and redirect the analysis to what is still movable. For most clients the deliverable is a basis-and-protection plan, not another deadline.