Re-run your decade transfer plan: $15 million federal floor, state floors decide cost

A business owner re-running a decade transfer plan should start from the federal baseline. The One Big Beautiful Bill Act removed the scheduled sunset and set a new baseline federal estate tax exemption of $15 million per individual. The scheduled estate tax sunset would have pulled the federal exemption back to the old baseline of $5 million plus inflation adjustments. Starting in 2026, the federal exemption for estate, gift, and generation-skipping transfer taxes will be $15 million per individual, $30 million for married couples, and adjusted for inflation.

The new baseline removes pressure to act before a deadline. It does not remove the need to sequence transfers. It does not reward overnight moves. A decade plan should assume the business keeps compounding value. A business owner who waits until the estate is large enough to matter may find that the state floor has already narrowed the options.

The state floor is the real cost

A total of 17 states, along with the District of Columbia, levy separate estate or inheritance taxes, usually with exemption levels well below the federal threshold. Massachusetts has a $2 million state estate tax exemption that is not indexed for inflation. A plan that clears the federal floor can still hit a state wall. For a closely held business, that wall can pressure a succession.

State floors are not uniform, so the owner should not assume the federal number does the work. The same estate can be tax-neutral in one state and expensive in another. The owner should also check whether the state tax applies to the business itself or only to the broader estate.

Underwrite the state floor before the transfer structure is locked. If the business is the main asset, the state tax can reduce the amount available to the next generation. If the estate includes other assets, the state tax can still apply even when the business is small.

Use the same test for every transfer path

The same criteria should judge every path: federal cost, state cost, and control. A path that looks clean on paper can fail when the state floor is applied to the actual assets.

• Wait for death and use the exemption. Federal cost stays low if the estate remains under the exemption. State cost can remain high. Control stays with the owner until the end, but liquidity can be tight when the bill arrives.
• Give assets over the decade. Federal cost can be managed by timing gifts within the available exemption. The state floor drives the state cost. Control shifts earlier, which can complicate business operations and family expectations.
• Plan around the surviving spouse. Portability can make a deceased spouse's unused federal exemption available to the surviving spouse to minimize federal estate taxes. The state floor still applies. Control can be protected through spousal planning, but the survivor may face a different estate size.

The choice depends on where the estate sits relative to the floors. If the estate is below the federal floor but above the state floor, the state tax is the main problem. If the estate is above both floors, the owner needs liquidity, control, and a clear succession sequence.

Underwrite the state floor before the business transfer

For a business owner with a $20 million estate in 2026, the federal estate tax would fall on $5 million above the $15 million exemption, producing a $2 million tax at the 40% rate rather than about $5.2 million under the old sunset scenario. The decade plan should start with the state floor, then time gifts, then lock the business transfer around the surviving spouse's position.

The owner should not treat the federal floor as a reason to stop planning. It changes the arithmetic, but it does not remove the state tax. Wealth transfer planning should be re-run after a major sale, hire, or family change. The question is not whether the estate is large enough to worry. The test is whether the transfer will still work when the state floor is applied.