For years, estate planners warned their clients: the Tax Cuts and Jobs Act's elevated estate tax exemption was set to sunset in 2026, dropping from roughly $14 million per person back to approximately $7 million. Wealthy families rushed to make irrevocable gifts. Trusts were funded. Attorneys worked overtime. Then, on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) eliminated the sunset entirely — permanently setting the federal estate and gift tax exemption at $15 million per individual ($30 million for married couples) beginning January 1, 2026, indexed for inflation thereafter. The cliff everyone planned for never arrived.
For US citizens living abroad, this is simultaneously good news and a planning reset. The higher exemption means fewer estates will owe federal tax. But the cross-border complications — non-citizen spouse rules, foreign estate taxes, situs issues, and treaty coordination — remain as complex as ever. If you planned your estate around the sunset, your documents may now be structured for a scenario that will never happen. Here's what changed, what didn't, and what you need to do.
2026 Estate Tax Quick Reference: Before vs. After OBBBA
| Provision |
2025 (TCJA) |
2026 Without OBBBA |
2026 With OBBBA |
| Individual Exemption |
$13.99M |
~$7M |
$15M |
| Married Couple (Combined) |
$27.98M |
~$14M |
$30M |
| Top Tax Rate |
40% |
40% |
40% |
| Annual Gift Exclusion |
$19,000 |
$19,000 |
$19,000 |
| Non-Citizen Spouse Annual |
$190,000 |
$190,000 |
$190,000 |
| NRA Exemption (US Assets) |
$60,000 |
$60,000 |
$60,000 |
| Sunset Date |
Dec 31, 2025 |
Reverted |
None (Permanent) |
Sources: IRS Revenue Procedure 2025-32, One Big Beautiful Bill Act §§ 110001-110006, IRS.gov estate and gift tax FAQ
Key Takeaways
- The $15 million per-person estate tax exemption is permanent — the TCJA sunset was eliminated by the OBBBA, effective January 1, 2026
- US citizens abroad still owe estate tax on worldwide assets — living overseas does not change your estate tax exposure
- Non-citizen spouses face a $60,000 trap — the unlimited marital deduction does not apply; use a QDOT or face immediate taxation
- Only 16 countries have US estate tax treaties — if your country isn't on the list, there's no treaty relief for double taxation
- If you planned for the sunset, review your documents — formula clauses tied to the exemption amount may produce unintended results at $15M
- Non-resident alien spouses get only $60,000 on US-situs assets — US stocks, ETFs, and real estate are all exposed
What the OBBBA Actually Changed
The Tax Cuts and Jobs Act of 2017 roughly doubled the federal estate and gift tax exemption — from $5.49 million per person to $11.18 million — but included a sunset provision. On January 1, 2026, the exemption was scheduled to revert to approximately $7 million (the pre-TCJA amount, adjusted for inflation). For five years, estate planners operated under the assumption that this cliff was coming.
The OBBBA did three things:
- Eliminated the sunset entirely — the elevated exemption is now permanent, not temporary
- Raised the exemption to $15 million per person ($30 million for married couples) for 2026, a $1.01 million increase over the 2025 TCJA level of $13.99 million
- Indexed for inflation starting 2027 — using 2025 as the base year, with annual adjustments published by the IRS each fall
The GST (generation-skipping transfer) tax exemption also rises to $15 million but is not portable between spouses — unlike the estate tax exemption, unused GST exemption cannot be transferred to a surviving spouse.
What did not change: the top estate tax rate remains 40%, the annual gift tax exclusion stays at $19,000 per recipient for 2026, and the non-citizen spouse annual exclusion remains $190,000. The $60,000 exemption for non-resident aliens on US-situs assets is also unchanged.
Why This Matters More for Expats Than Domestic Taxpayers
For a domestic US taxpayer with a $10 million estate, the permanent $15 million exemption means they likely owe nothing in federal estate tax. Simple. But for a US citizen living abroad, the analysis is more complex:
1. You're Still Subject to US Estate Tax on Worldwide Assets
US citizenship-based taxation extends to estate tax. A US citizen living in London, Toronto, Sydney, or Dubai with $20 million in worldwide assets — including foreign real estate, foreign bank accounts, foreign pensions, and foreign business interests — owes US estate tax on the full $20 million, with a $15 million exemption. The remaining $5 million is taxed at rates up to 40%. Living abroad does not reduce your US estate tax exposure by a single dollar.
2. Your Country of Residence May Also Tax the Same Estate
Many countries impose their own estate, inheritance, or succession taxes. The UK charges 40% on estates above £325,000 (approximately $410,000). France's inheritance tax reaches 45% for direct descendants and 60% for non-relatives. Japan's inheritance tax tops out at 55%. Germany's ranges from 7% to 50% depending on the relationship to the deceased.
Without treaty relief, the same assets can be taxed by both the US and your country of residence. The US does provide a foreign death tax credit under IRC Section 2014, which offsets US estate tax for foreign estate or inheritance taxes paid on property situated in the foreign country. But the credit mechanics are complex, and it only applies to taxes paid on foreign-situs property — not on property the foreign country taxes under domicile-based rules.
3. The Non-Citizen Spouse Trap Is the Biggest Cross-Border Risk
In purely domestic estate planning, the unlimited marital deduction allows a US citizen to leave any amount to a surviving US citizen spouse with zero estate tax. This is the bedrock of most estate plans. But for US expats married to non-US citizens — which describes a large percentage of Americans living abroad — the unlimited marital deduction does not apply.
Instead, you have two options:
- Annual exclusion gifts: Transfer up to $190,000 per year (2026, inflation-adjusted) to your non-citizen spouse tax-free during your lifetime. This is a slow drip — it would take 79 years to transfer $15 million at this rate.
- Qualified Domestic Trust (QDOT): A QDOT defers estate tax on assets passing to a surviving non-citizen spouse. The trust must have at least one US trustee, the US trustee must have the right to withhold estate tax on distributions of principal, and the trust must meet IRS requirements for both structure and ongoing compliance. Estate tax is paid when principal is distributed to the surviving spouse, or upon the spouse's death — not at the first spouse's death.
Without a QDOT, the full estate tax applies immediately at the first spouse's death on amounts exceeding the $15 million exemption. For a US citizen in Canada married to a Canadian spouse with a combined estate of $18 million, the difference between having a QDOT and not having one is a $1.2 million tax bill at the first death versus deferral until the second death.
Real Example: The QDOT Math
David (US citizen) and Mei (Singaporean citizen) live in Singapore. Combined estate: $22 million. David dies first.
Without QDOT: David's $15M exemption shelters $15M. The remaining $7M passing to Mei is taxed at ~40% = $2.8M estate tax due immediately. Mei receives $4.2M of that $7M.
With QDOT: The full $22M passes into the QDOT. Estate tax is deferred. Mei accesses income from the trust tax-free. Estate tax is owed only when principal is distributed or at Mei's death — potentially decades later, with the money growing in the meantime.
The 16 Countries With US Estate Tax Treaties
Estate tax treaties provide mechanisms to avoid or reduce double taxation on estates. The US has estate and/or gift tax treaties with only 16 countries:
Australia
Austria
Canada
Denmark
Finland
France
Germany
Greece
Ireland
Italy
Japan
Netherlands
Norway
South Africa
Switzerland
United Kingdom
If you live in a country not on this list — including Mexico, Spain, Portugal, Israel, UAE, Singapore, Hong Kong, Thailand, Costa Rica, Panama, and most of Asia, Latin America, and the Caribbean — there is no treaty mechanism to resolve double estate taxation. Relief depends entirely on the US foreign death tax credit (IRC §2014) and any unilateral relief provisions in your country of residence.
Treaty benefits vary significantly by country. The US-Canada treaty is the most comprehensive: it provides a pro-rata unified credit for Canadian residents with US-situs assets, allows a marital credit for assets passing to a surviving spouse, and has special rules for RRSP and RRIF distributions after death. The US-UK treaty allocates primary taxing rights based on domicile and provides credits for taxes paid to the other country. The US-France treaty includes provisions for real property and applies to both estate and gift taxes.
Non-Resident Aliens: The $60,000 Problem Hasn't Changed
While the OBBBA dramatically increased the exemption for US citizens and domiciliaries, it did nothing for non-resident aliens (NRAs). If your spouse, parent, or family member is not a US citizen or resident, their US-situs assets are subject to estate tax with only a $60,000 exemption — unchanged since 1988.
US-situs assets for NRAs include:
- US real estate — including vacation homes, rental properties, and land
- Shares of US corporations — this includes Apple, Microsoft, Tesla, and every US-listed stock, ETF, and mutual fund
- Tangible personal property in the US — art, jewelry, vehicles located in the United States
- US retirement accounts — 401(k) and IRA balances are US-situs property
- US partnership and LLC interests — if the entity conducts business in the US
A Canadian citizen with no US ties but a $500,000 US stock portfolio (Apple, Amazon, S&P 500 ETFs) has $440,000 of estate tax exposure ($500,000 - $60,000 exemption) at rates up to 40% — a potential $176,000 US estate tax bill. This applies to citizens of every country, including Canada, the UK, and Australia. The US-Canada estate tax treaty provides some relief through a pro-rata unified credit, but the mechanics are complex and require proper Form 706-NA filing.
If You Planned for the Sunset: What to Review Now
Thousands of families restructured their estates before 2026 based on the assumption that the exemption would drop to ~$7 million. With the exemption now permanently at $15 million (and rising with inflation), some of those planning decisions need revisiting:
Formula Clauses in Trusts
Many estate plans use formula clauses that fund trusts based on "the maximum amount that can pass free of estate tax." Under the old $7M sunset scenario, that formula would fund a bypass trust with ~$7 million and direct the remainder to the surviving spouse. With a $15 million exemption, the same formula now directs $15 million to the bypass trust — potentially leaving the surviving spouse with far less than intended. Review any trust documents with formula-based funding provisions.
Irrevocable Gifts Already Made
If you made large irrevocable gifts in 2024-2025 to use up your exemption before the sunset, those gifts are permanent and cannot be reversed. The good news: under the IRS's anti-clawback regulation (Treasury Regulation §20.2010-1(c)), gifts made when the exemption was higher will not be subject to additional estate tax even if exemption amounts are later reduced. Your gifts are protected. The consideration now is whether the assets you transferred would have been better held in your estate given the permanently higher exemption.
Portability Elections
With a $15 million exemption per person, portability becomes even more valuable. If the first spouse to die doesn't use the full $15 million exemption, the unused portion (the Deceased Spousal Unused Exclusion Amount, or DSUE) can be transferred to the surviving spouse — but only if Form 706 is filed, even if no estate tax is owed. At $15 million per person, a surviving spouse could have up to $30 million in combined exemption through portability. Failing to file Form 706 after the first death wastes this opportunity.
State Estate Tax Exposure
The OBBBA only changed the federal estate tax exemption. Twelve states and the District of Columbia impose their own estate taxes, with exemptions ranging from $1 million (Oregon, Massachusetts) to $13.99 million (Connecticut, which mirrors the federal exemption). If you maintain domicile in one of these states — or own real property there — state estate tax may apply even if your estate is well below the $15 million federal threshold. States with estate taxes include Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, Washington, and the District of Columbia.
5 Action Items for US Expats in 2026
- Review trust documents with formula clauses. If your estate plan was drafted or updated between 2018 and 2025, check whether any funding formulas reference the "applicable exclusion amount" or "maximum estate tax exemption." These formulas now produce very different results at $15M vs. the ~$7M sunset scenario they were designed for.
- Establish a QDOT if your spouse is not a US citizen. This is the single most important estate planning tool for cross-border couples. Without a QDOT, the non-citizen spouse cannot benefit from the marital deduction, and the full estate tax applies at the first death. A properly structured QDOT defers the tax, sometimes indefinitely.
- File Form 706 after the first spouse's death — even if no tax is owed. This preserves portability of the unused exemption. At $15 million per person, the DSUE amount could be worth millions in future estate tax savings for the surviving spouse. There is a two-year deadline to file for portability (Revenue Procedure 2022-32).
- Check whether your country of residence has an estate tax treaty with the US. If it does, understand the specific provisions — treaty benefits are not automatic and must be claimed on the estate tax return. If your country is not among the 16 treaty countries, plan for the possibility of double taxation and explore mitigation strategies such as life insurance trusts and inter-vivos gifting.
- Coordinate US and foreign estate planning documents. Having separate wills for US and foreign assets is common for cross-border families, but the documents must be carefully coordinated to avoid one will inadvertently revoking the other. A US will that covers "all my property worldwide" can revoke a previously executed foreign will. Work with attorneys in both jurisdictions.
Don't Let a $15 Million Exemption Create a False Sense of Security
The higher exemption protects more estates from federal tax, but cross-border complications — non-citizen spouses, foreign inheritance taxes, situs rules, and treaty coordination — still require professional planning. Our team specializes in cross-border estate strategies for US citizens abroad. Get a clear picture of your exposure before it's too late.
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Frequently Asked Questions
What is the federal estate tax exemption for 2026?
The federal estate tax exemption for 2026 is $15 million per individual ($30 million for married couples). This was permanently set by the One Big Beautiful Bill Act, signed July 4, 2025. The exemption is indexed for inflation beginning in 2027. The top estate tax rate remains 40% on amounts exceeding the exemption.
Does the $15 million exemption apply to US expats?
Yes. US citizens are subject to federal estate tax on their worldwide assets regardless of where they reside. Living abroad does not reduce your estate tax exposure. The full $15 million exemption applies, but your estate may also face estate or inheritance taxes in your country of residence, potentially creating double taxation that must be managed through treaty provisions or the IRC §2014 foreign death tax credit.
Is the $15 million exemption permanent?
Yes, under current law. The OBBBA eliminated the TCJA's sunset provision that would have reduced the exemption to approximately $7 million in 2026. There is no expiration date. However, future legislation could reduce or change the exemption. Estate planners recommend locking in current exemption amounts through lifetime gifts when appropriate, as completed gifts are protected under the anti-clawback regulation even if exemptions are later reduced.
What if my spouse is not a US citizen?
The unlimited marital deduction does not apply to non-citizen spouses — even if they hold a US green card. You can transfer up to $190,000 per year tax-free, or use a Qualified Domestic Trust (QDOT) to defer estate tax on assets passing to the surviving non-citizen spouse. Without a QDOT, the full estate tax applies at the first spouse's death on amounts exceeding the $15 million exemption.
What is the estate tax exemption for non-resident aliens?
Non-resident aliens receive only a $60,000 exemption on US-situs assets — unchanged by the OBBBA. US-situs assets include US real estate, shares of US corporations (including ETFs), and US retirement accounts. Estate tax rates range from 18% to 40%. Treaty countries may qualify for a pro-rata share of the full $15 million exemption.
Which countries have US estate tax treaties?
The US has estate and gift tax treaties with 16 countries: Australia, Austria, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Netherlands, Norway, South Africa, Switzerland, and the United Kingdom. Popular expat destinations without a treaty include Mexico, Spain, Portugal, Israel, UAE, Singapore, and most of Asia and Latin America.
Do I need to file Form 706 if my estate is under $15 million?
Not required, but strongly recommended if you want to preserve portability — the ability to transfer your unused exemption to a surviving spouse. The surviving spouse could gain up to $15 million in additional exemption through the DSUE amount, but only if Form 706 is filed within two years of the first spouse's death.
