The Number Is Not the Plan.

• The basic exclusion amount for estates of decedents dying in 2027 is $15,480,000, up from $15,000,000 for 2026.
• The annual gift exclusion rises to $20,000 per recipient, up from $19,000.
• The annual exclusion for gifts to a spouse who is not a U.S. citizen rises to $201,000, up from $194,000 (IR-2026-133, supra (basic exclusion amount of $15,480,000 for decedents dying in 2027, up from $15,000,000; annual exclusion of $20,000, up from $19,000; annual exclusion for gifts to a non-U.S.-citizen spouse of $201,000, up from $194,000). The 2026 figures appear in Rev. Proc. 2025-32 and the accompanying IRS release for tax year 2026).

These are useful numbers. They are not, by themselves, a plan. The lesson we draw from this year’s table is the same one we draw from every judgment-enforcement case that crosses our desk: the value of a transfer is decided less by how large it is than by when, how, and to whom it is made. A gift made early, into an irrevocable structure, administered by someone other than the donor, compounds in both tax and protective value. A gift made late, in a hurry, to someone the donor still controls, may compound only the evidence against him.

For most of the past decade, American estate planning was organized around a cliff. The Tax Cuts and Jobs Act of 2017 roughly doubled the basic exclusion amount, but only through the end of 2025. Planners spent years anticipating a reversion, and Treasury issued the so-called anti-clawback regulations in November 2019 (T.D. 9884) to assure taxpayers that gifts sheltered by the higher exclusion would not be retroactively taxed if the exclusion later fell (T.D. 9884, Estate and Gift Taxes; Difference in the Basic Exclusion Amount, 84 Fed. Reg. 64,995 (Nov. 26, 2019); Treas. Reg. § 20.2010-1(c)).

The cliff did not arrive. Public Law 119-21, signed on July 4, 2025, amended § 2010(c)(3) of the Internal Revenue Code to set the basic exclusion amount at $15,000,000 for calendar year 2026, with annual inflation adjustment thereafter (Pub. L. No. 119-21 (July 4, 2025), amending I.R.C. § 2010(c)(3); see Internal Revenue Service, “What’s new — Estate and gift tax,” irs.gov). Rev. Proc. 2026-35 is the first adjustment under that framework, and it carries the figure to $15,480,000 for 2027. Because the generation-skipping transfer (GST) tax exemption is defined by reference to the basic exclusion amount, the GST exemption moves with it (I.R.C. § 2631(c) (GST exemption equal to the basic exclusion amount under § 2010(c))).

Two cautions belong here, because this is a field that rewards precision. First, “no scheduled sunset” is not the same thing as “permanent.” What one Congress enacts, another may revise; the anti-clawback regulations exist precisely because exemption levels have proved changeable. Second, an inflation adjustment of $480,000 is meaningful, but it is incremental. It does not change the architecture of a sound plan. It simply gives that architecture slightly more room.

A generous exclusion has a quiet side effect. It persuades people that wealth transfer can wait — that a family with $25 million can sit comfortably beneath a combined $30.96 million in exclusions for a married couple and plan “when the time comes” (the combined figure assumes full use of each spouse’s 2027 basic exclusion amount (2 × $15,480,000), whether by lifetime gifts, gift-splitting under I.R.C. § 2513, or a timely portability election under I.R.C. § 2010(c)(4)–(5); actual availability depends on prior taxable gifts and elections). From a pure transfer-tax standpoint, that reasoning is not irrational. From an asset-protection standpoint, it is the most expensive mistake in the field.

The reason is that the estate tax and the law of voidable transactions ask different questions. The estate tax asks how much moved. The law of voidable transactions asks why and when. Under the Uniform Voidable Transactions Act, which most states have adopted in some form, a transfer is voidable if made “with actual intent to hinder, delay, or defraud any creditor,” and courts infer that intent from the familiar “badges of fraud”: a transfer to an insider, retained control of the property, concealment, the existence of a pending or threatened suit, and a transfer of substantially all of the debtor’s assets (Uniform Voidable Transactions Act § 4(a)(1), (b) (Unif. L. Comm’n 2014) (actual intent; non-exclusive list of factors); state enactments vary, and New York’s analogue appears at N.Y. Debt. & Cred. Law §§ 273–276).

Gifts carry an additional exposure that sales do not. A gift, by definition, is a transfer for which the donor receives no reasonably equivalent value. If the donor was insolvent at the time, or was rendered insolvent by the transfer, or was about to engage in a business for which his remaining assets were unreasonably small, the transfer may be voidable without any proof of intent at all (Uniform Voidable Transactions Act §§ 4(a)(2), 5(a) (transfers without reasonably equivalent value by a debtor who was, or thereby became, insolvent, or who was left with unreasonably small assets)). An annual-exclusion gift is excluded from the gift tax. It is not excluded from the Uniform Voidable Transactions Act.

The practical consequence is stark. A family that waits until a lawsuit, a guaranty call, or a failing business venture to begin “using the exemption” will find that the tax law welcomes the transfer while the creditor-remedy law treats it as a confession. The exclusion amount is identical on both days. The legal character of the gift is not.

Read correctly, an annually indexed exclusion is an argument for the disciplines we return to in every Watchtower piece. Each of them is easier, cheaper, and more defensible when begun on a clear day.

1. Seasoning. A program of annual-exclusion gifts begun years before any claim builds a documented, unremarkable pattern. A $20,000 gift to each of several descendants, repeated every year into a properly drafted trust, is the very opposite of an eve-of-trouble transfer: it is regular, modest relative to the donor’s estate, made while solvent, and consistent with a long-standing family purpose. The indexing of the annual exclusion simply allows that pattern to grow with the economy. The protective value comes from the years, not the dollars.

2. Irrevocability and discretion. A gift that the donor can recall is not, in substance, a gift. Lifetime use of the basic exclusion is most durable when the transfer is complete and the beneficiaries’ interests are discretionary rather than fixed entitlements. There is a well-known tension worth naming: to qualify trust gifts for the annual exclusion, practitioners commonly grant beneficiaries a temporary withdrawal right — the “Crummey” power, after Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968). The Tax Court in Estate of Cristofani later upheld such powers held by contingent beneficiaries (Estate of Cristofani v. Commissioner, 97 T.C. 74 (1991)). Those powers are a tax tool, and they must be drafted and administered so that, once they lapse, the remaining trust is genuinely discretionary. Withdrawal notices that are actually sent, and windows that genuinely close, are part of what makes the structure credible.

3. Independent administration. The anti-clawback regulations protect a completed gift; the law of voidable transactions and the doctrines of sham and alter ego protect against gifts that were completed only on paper. An independent trustee who exercises real discretion, keeps real records, and declines to treat the trust as the donor’s checkbook is the line between a trust and a nominee. That line cannot be drawn retroactively.

4. Generation-skipping allocation. Because the GST exemption tracks the basic exclusion amount, each year’s increase is an opportunity to allocate additional exemption to long-term discretionary trusts for descendants (I.R.C. § 2631(c)). Those are precisely the structures — irrevocable, discretionary, independently administered, and designed to endure for decades — that also serve protective ends. One technical point deserves emphasis: the portability election, which lets a surviving spouse use a deceased spouse’s unused estate exclusion, does not carry over unused GST exemption (I.R.C. § 2010(c)(4) (deceased spousal unused exclusion amount defined by reference to the basic exclusion amount under § 2010(c)); the GST exemption under § 2631 is not included in the portability election). A GST exemption left unallocated at the first death may simply be lost. That is an argument for lifetime planning rather than reliance on the survivor.

The $201,000 annual exclusion for gifts to a non-citizen spouse deserves its own note, because it sits at the intersection of two themes that recur in our work. Outright transfers to a citizen spouse qualify for the unlimited marital deduction; transfers to a non-citizen spouse do not, which is why Congress provides a separate, larger annual exclusion under § 2523(i) (IR-2026-133, supra; I.R.C. §§ 2523(a), 2523(i)).

That exclusion is a legitimate and valuable tool for internationally mobile families. But the planner should be clear-eyed about what a spousal transfer is in the eyes of a creditor: a transfer to an insider. In Chishti, the subject of an earlier Watchtower essay, transfers to a spouse made after an arbitration award were found to have been made with actual intent to hinder, delay, or defraud, and were unwound (The Resource Group International Ltd v. Chishti & Pobereskin [2026] SC (Bda) 22 Civ (Sup. Ct. Bermuda, 25 Feb. 2026), and related proceedings in the U.S. District Court for the Southern District of New York; see “After the Storm: Why Chishti Proves That Asset Protection Cannot Be Improvised,” From the Watchtower). The tax code’s generosity toward spousal gifts says nothing about their protective value. A spousal gifting program that is regular, long-standing, and made while solvent reads very differently from one that begins when a claim appears — even if every dollar falls within the annual exclusion.

The tax column is identical in both. Everything that determines whether the wealth actually endures is in the other rows.

Revenue Procedure 2026-35 will be summarized in thousands of client letters as good news, and in a narrow sense it is. Families have a slightly larger exclusion, a slightly larger annual gift, and a slightly larger GST exemption than they did a year ago. But the number is not the plan. An exclusion amount tells you how much can move without transfer tax. It tells you nothing about whether the transfer will hold.

What makes a transfer hold is what has always made it hold: that it was made early, while the donor was solvent and unthreatened; that it was irrevocable and discretionary; that it was administered by someone independent of the donor; and that it was disclosed rather than hidden. Those conditions are not created by the IRS each November. They are created by the client, on a clear day, and they grow more valuable with every year that passes uneventfully.

The specific use of exclusions, the choice of trust jurisdiction, and the interaction with state law turn on each family’s facts and should be reviewed with qualified tax and legal counsel. This note is informational and is not legal or tax advice for any particular person.