A couple came to see me in March. They had built a revocable living trust in 2017 with a well-regarded firm that is no longer in practice. The trust included a formula-based credit-shelter provision designed to capture the full federal estate-tax exemption at the first spouse's death and leave the rest to the surviving spouse in a marital trust.
In 2017, the exemption was $5.49 million per person. The Tax Cuts and Jobs Act temporarily doubled it, and later legislation replaced the expected 2026 reduction with a $15 million basic exclusion amount for 2026. The old cliff forecast is no longer current law.
The formula in their trust reads: "at the death of the first spouse, allocate to the credit-shelter trust an amount equal to the maximum amount that can pass free of federal estate tax." Under the 2026 exclusion, that formula may direct far more property to a bypass trust than the family expected. That can affect the surviving spouse's access, administration, income-tax treatment, and the opportunity for a later basis adjustment.
Their estate is $18 million. Federal estate tax may no longer be the plan's immediate problem, but an automatic formula drafted for a different tax environment can still produce the wrong family result.
What Changed for 2026
The 2017 Tax Cuts and Jobs Act included a scheduled 2026 sunset. That reduction did not take effect. Current law sets the 2026 federal basic exclusion amount at $15 million per person, with inflation adjustments after 2026.
Planning should therefore use the law that is actually in force, while recognizing that tax laws and asset values can change. Portability, trust formulas, lifetime gifts, basis, and state-law consequences still need individualized review.
Who Is Exposed
Families approaching or exceeding the current exclusion need federal estate-tax analysis. Families below it may still have significant income-tax, basis, creditor, beneficiary-protection, and control issues. A married couple's potential exclusions also require proper planning and, when appropriate, a timely portability election; they are not simply automatic.
Older plans deserve review when they contain formula allocations tied to the maximum federal exemption, mandatory bypass trusts, outdated trustee provisions, or assumptions that no longer match the family's assets and goals.
Why Formula Clauses Still Matter
A formula tied to the maximum available exclusion changes as federal law changes. At a $15 million exclusion, it can overfund a credit-shelter trust relative to what the family intended. A disclaimer plan, portability strategy, or more flexible allocation formula may be a better fit, depending on the estate and the surviving spouse's needs.
Advanced lifetime strategies such as a Spousal Lifetime Access Trust may still be appropriate for some families, particularly those with substantial expected growth. They are not deadline-driven defaults. Access, basis, gift-tax reporting, valuation, and the reciprocal-trust doctrine all require careful analysis.
What to Audit Now
For an older estate plan, the items I would audit include:
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Texas Estate Tax & Basis Planning Worksheet
For Texas families coordinating basis, trust-income-tax, and estate-tax planning under current 2026 federal law
- Any formula-based allocation in an existing will or trust — does the formula still do what you intend under the current exemption?
- Any bypass trust, credit-shelter trust, or QTIP election strategy — does it still produce the intended tax outcome?
- Existing life insurance trusts (ILITs) and the exemption they consume
- Lifetime gifting strategy, remaining exclusion, basis, and control consequences
- Business-ownership and real-estate appraisals — valuation freezes, recapitalizations, and GRAT strategies all depend on current valuations
- Step-up-in-basis coordination with estate-tax planning — avoiding lifetime gifts of low-basis assets that would better step up at death
Texas Has No State Estate Tax — But That Does Not Help Here
Texas imposes no state-level estate tax, which is a real benefit for Texas residents. Federal transfer-tax rules still apply, and Texas community-property rules can materially affect basis planning and marital strategies.
Current Law, Current Plan
Meaningful planning still takes time. Appraisals, trust drafting, asset-transfer mechanics, beneficiary coordination, and tax reporting should be completed deliberately. The reason to review now is to make the plan match current law and current family goals, not an expired 2025 deadline.
If your plan was drafted around an old exemption formula or a predicted 2026 cliff, it deserves a fresh review.
Carla Alston holds a Master of Laws in Taxation from New York University School of Law. She leads tax-smart estate planning at WG Law. Learn more or schedule a consultation.