Understanding the Federal Estate Tax Exemption: What Missouri Families Need to Know in 2026

Understanding the Federal Estate Tax Exemption: What Missouri Families Need to Know in 2026

Estate taxes might not be the first thing on your mind when you think about protecting your family. But if you own a home, have retirement accounts, hold life insurance, or have built any meaningful wealth, the federal estate tax could have a bigger impact on your family than you realize, especially with major changes on the horizon.

At The Taormina Firm, we help families across the St. Louis metro area, from Wildwood and Chesterfield to Maryland Heights and St. Charles, understand how federal tax law intersects with their Missouri estate plans. Here's what you need to know right now.

What Is the Federal Estate Tax?

The federal estate tax is a tax on the transfer of your assets after you die. It applies to the total value of everything you own at the time of your death, including real estate, investments, bank accounts, business interests, life insurance proceeds, and personal property. The tax rate for amounts above the exemption threshold can be as high as 40 percent.

However, not everyone owes estate taxes. The key number is the federal estate tax exemption, which is the amount you can pass to your heirs tax-free.

The Current Exemption and the 2026 Sunset

Thanks to the Tax Cuts and Jobs Act of 2017 (TCJA), the federal estate tax exemption was roughly doubled. For 2025, the exemption is approximately $13.99 million per individual (or about $27.98 million for a married couple using portability). That means most Americans currently don't owe any federal estate tax.

But here's the catch: the TCJA provisions are scheduled to sunset at the end of 2025. Unless Congress acts, the exemption is expected to drop back to approximately $6 to $7 million per person (adjusted for inflation) starting in 2026. That's a dramatic reduction that could bring millions of American families, including many in Missouri, back into estate tax territory.

Does Missouri Have Its Own Estate Tax?

Good news for Missouri residents: Missouri does not currently impose a state-level estate tax or inheritance tax. Some neighboring states do (Illinois, for example, has its own estate tax with a much lower exemption), but Missouri families only need to worry about the federal estate tax.

That said, if you own property in a state that does have an estate tax, that property could be subject to that state's tax rules, even if you live in Missouri. This is one reason why estate planning for families who own out-of-state real estate or business interests requires extra attention.

Who Should Be Concerned?

If your combined estate (including life insurance death benefits) is worth more than the projected post-sunset exemption of roughly $6 to $7 million, you should be planning now. And keep in mind that your "estate" for tax purposes includes the full death benefit of any life insurance policy you own, the value of your home and other real property, all retirement accounts, investment and bank accounts, and business interests.

When you add it all up, many families in communities like Clayton, Kirkwood, and Des Peres are closer to the threshold than they think, especially when you factor in life insurance.

Strategies to Minimize Estate Tax Exposure

There are several proven strategies that Missouri families can use to reduce their potential estate tax burden.

Irrevocable Life Insurance Trusts (ILITs). By transferring ownership of your life insurance policy to an irrevocable trust, the death benefit is removed from your taxable estate. This is one of the most effective and commonly used estate tax reduction tools.

Lifetime gifting. The federal gift tax exemption allows you to give up to $18,000 per recipient per year (2024 amount, adjusted annually for inflation) without using any of your lifetime exemption. Strategic gifting over time can significantly reduce the size of your taxable estate.

Spousal portability. When one spouse dies, the surviving spouse can "port" the deceased spouse's unused estate tax exemption to their own. But this requires filing a federal estate tax return (Form 706) after the first spouse's death, even if no tax is owed. Many families miss this step.

Charitable planning. Gifts to qualified charities, either during your lifetime or at death, are fully deductible from your taxable estate. Charitable remainder trusts and donor-advised funds can allow you to benefit from charitable deductions while still providing income to your family.

Why Planning Now Matters

The potential reduction in the estate tax exemption makes 2026 a critical year for estate planning. Strategies like lifetime gifting and trust creation are most effective when implemented before the law changes, not after. Waiting until the exemption drops means losing the opportunity to transfer wealth at today's higher thresholds.

Take Action Before the Rules Change

If you're a Missouri family with significant assets, now is the time to review your estate plan with an experienced attorney. Whether you're in O'Fallon, Sunset Hills, Brentwood, or anywhere in the St. Louis region, contact The Taormina Firm to schedule a consultation. We'll help you understand your exposure and put strategies in place to protect your family's wealth.