The grandfather clock in the study chimed, startling Patricia out of her reverie. She glanced at the calendar—December already. As the executor of her late husband James's estate, she knew there were important financial matters to address before the year's end. But where to begin? The stack of papers on the desk seemed to grow taller by the day, each document a reminder of the complex world of estate and inheritance taxes she now had to navigate.

Patricia's story is familiar to many who have lost a spouse. The end of the year brings not just holidays and reflections, but crucial deadlines and decisions regarding estate and inheritance taxes. At Wings for Widows, we understand that these financial matters can seem overwhelming, especially when coupled with grief. That's why we're here to guide you through the maze of year-end estate and inheritance tax planning.

MAJOR CHANGE: What the One Big Beautiful Bill Act Means for Your Estate

Before we dive into year-end deadlines and strategies, it's important to understand a major change that occurred in 2025. On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law, fundamentally changing the landscape of estate tax planning.

Here's what changed:

Federal Estate Tax Exemption: Starting January 1, 2026, the federal estate tax exemption permanently increased to $15 million per person ($30 million per married couple). This is up from $13.99 million in 2025. The exemption will be adjusted annually for inflation starting in 2027, using 2026 as the base year.

No Sunset Provision: Unlike the previous Tax Cuts and Jobs Act provisions that were set to expire, this increase is permanent. There is no automatic sunset date, meaning the exemption will remain at this level unless changed by future legislation.

What This Means for You: If you were concerned about the estate tax exemption dropping in 2026 (as was previously scheduled), you can breathe easier. The urgency to make large gifts before year-end 2025 has been eliminated for most families. However, estate planning remains critically important for reasons beyond just federal estate taxes.

What Didn't Change:

• Portability rules remain the same (more on this below)
• Estate tax rate is still 40% on amounts above the exemption
• Generation-Skipping Transfer (GST) tax exemption also increased to $15 million (not portable between spouses)
• Unlimited marital deduction still applies
• Step-up in basis at death remains intact
• State estate taxes still exist in 12 states plus D.C.

The bottom line: While fewer estates will now owe federal estate tax, comprehensive estate planning remains essential for asset protection, probate avoidance, state estate taxes, and ensuring your wishes are honored.

The Clock is Ticking: Crucial Estate Tax Considerations Before December 31st

When it comes to estate taxes, time is of the essence. Certain decisions and actions must be taken before the calendar flips to a new year. Let's break down the key considerations:

Valuation Date: A Critical Choice

One of the most important decisions Patricia faced was choosing the valuation date for James's estate. The IRS allows estates to be valued either on the date of death or on the "Alternate Valuation Date"—six months after the date of death.

For example, James passed away on May 15th. Patricia could choose to value the estate as of May 15th or as of November 15th. This choice can have significant tax implications, especially if asset values have changed substantially in those six months.

Patricia remembered the volatile stock market over the past few months. After consulting with a financial advisor, she realized that choosing the Alternate Valuation Date could potentially reduce the estate's value, and consequently, the estate tax liability—though with the new $15 million exemption, far fewer estates will owe tax.

Disclaimers: To Accept or Not to Accept

Another time-sensitive consideration is the use of disclaimers. A disclaimer is a legal refusal to accept an inheritance, which can be a powerful estate planning tool. But here's the catch—disclaimers generally must be made within nine months of the date of death.

Consider the case of Robert, whose wife Linda passed away in April. Linda's will left everything to Robert, with their children as contingent beneficiaries. By December, Robert realized he didn't need all of the assets and that passing some directly to their children could save on overall family taxes. However, he had to act fast to execute the disclaimers before the nine-month window closed.

Portability Election: Don't Leave Money on the Table

For married couples, one of the most valuable estate tax benefits is portability—the ability of a surviving spouse to use any unused portion of their deceased spouse's estate tax exemption. But this isn't automatic. You must elect portability by filing an estate tax return (Form 706), even if no tax is due.

The deadline? Generally nine months after the date of death, with a possible six-month extension. However, under Revenue Procedure 2022-32, you can elect portability up to five years after the date of death. Missing this window could mean leaving millions of dollars of tax exemption on the table.

Patricia was relieved to learn about portability. Even though James's estate of $8 million wasn't large enough to owe federal estate taxes in 2025 (with the $13.99 million exemption), she filed Form 706 to elect portability. This was wise planning—with James's unused exemption of $5.99 million now portable to her, Patricia's combined exemption in 2026 and beyond will be $20.99 million ($15 million of her own plus James's $5.99 million DSUE). This provides valuable protection if her assets grow significantly in the future.

Important Note: The portability election "locks in" the deceased spouse's unused exemption amount at the time of death. So if James died in 2025 with a $13.99 million exemption and used $8 million, his unused exemption of $5.99 million carries over to Patricia regardless of future changes to the exemption amount.

Your filing status can significantly impact estate taxes. For more information, see our article "Year-End Filing Status Decisions for New Widows and Widowers."

Year-End Deadlines: A Race Against Time

As the year draws to a close, several important deadlines loom for estate administration:

Estate Tax Returns and Payments

If an estate tax return (Form 706) is required—or if you want to elect portability—it's generally due nine months after the date of death. However, an automatic six-month extension is available if requested before the due date.

For estates where tax is due, it's crucial to note that while filing can be extended, payment cannot. Interest will accrue on any unpaid tax, so it's vital to estimate and pay any expected estate tax by the original due date.

Income Tax Returns for the Estate

Estates are separate taxpaying entities and may need to file an income tax return (Form 1041) if they earn more than $600 in annual income. The tax year for an estate can be a calendar year or a fiscal year. If a calendar year is chosen, the return is due by April 15th of the following year.

Income Tax Returns for the Deceased

Don't forget about the final income tax return for your deceased spouse. This return (Form 1040) covers the period from January 1st to the date of death and is due by April 15th of the year following the death.

Patricia found herself juggling multiple tax returns—James's final personal return, the estate's income tax return, and her own personal return. She marked all the relevant dates on her calendar, determined not to miss any deadlines.

Giving with Purpose: Year-End Charitable Strategies

For many, the end of the year is a time for giving. And when it comes to estate planning, charitable giving can be a powerful tool for both honoring your loved one's memory and managing tax liabilities.

Charitable Lead Trusts: A Win-Win

A Charitable Lead Trust (CLT) can be an effective year-end strategy. It provides income to a charity for a set period, after which the remaining assets pass to your beneficiaries.

Consider the story of Eleanor, who inherited a significant portfolio from her late husband. By setting up a CLT before year-end, she was able to support their favorite charity, potentially reduce estate taxes (for estates still subject to tax), and still pass on wealth to their children.

Donor-Advised Funds: Flexibility in Giving

For those who want to make charitable contributions but haven't decided on specific charities, a Donor-Advised Fund (DAF) can be a great year-end option. You can make a contribution before December 31st to secure the tax deduction, but decide later how to distribute the funds.

Note: Under OBBBA, new rules for charitable contributions took effect in 2026. Individuals who itemize deductions can only deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). Additionally, high-income taxpayers (with taxable income exceeding certain thresholds) face new limitations on total itemized deductions.

Qualified Charitable Distributions: A Tax-Efficient Gift

For widows or widowers over 70½, making Qualified Charitable Distributions (QCDs) directly from an IRA can be an excellent strategy. These distributions count towards Required Minimum Distributions but are not included in taxable income.

The annual limit for QCDs is $100,000 per individual. QCDs can be made from traditional IRAs, inherited IRAs, inactive SEP IRAs, and inactive SIMPLE IRAs. QCDs cannot be made from employer-sponsored retirement plans like 401(k)s or active SEP and SIMPLE IRAs. A QCD can satisfy all or part of the Required Minimum Distribution (RMD) from your IRA, as long as the QCD meets the RMD requirements and is made by the RMD deadline (December 31st). If you delayed your first RMD, a QCD made by April 1st of the following year can still count towards the prior year's RMD. Remember, the charity must be a 501(c)(3) organization eligible to receive tax-deductible contributions. Some restrictions apply, such as distributions to donor-advised funds or private foundations are not eligible for QCDs.

Patricia remembered James's passion for supporting local education. She decided to honor his memory by making a substantial QCD to their local school district's foundation, effectively reducing her taxable income while making a meaningful impact.

The Inheritance Puzzle: Required Distributions from Retirement Accounts

Inheriting retirement accounts comes with its own set of rules and deadlines, many of which converge at year-end.

Required Minimum Distributions (RMDs)

If your deceased spouse was taking RMDs from their retirement accounts, you may need to take any remaining RMD for the year of death by December 31st.

Inherited IRA Considerations

The rules for inherited IRAs changed significantly with the SECURE Act of 2019. While spouses have special options, including treating an inherited IRA as their own, non-spouse beneficiaries generally must empty the account within 10 years.

Robert, whom we met earlier, inherited his wife Linda's substantial IRA. He decided to treat it as his own, allowing him to delay RMDs until he turns 73 and potentially stretching out the tax benefits.

Qualifying Widow(er) status can interact with estate planning strategies. Our article "Qualifying Widow(er) Status: Year-End Preparation and Planning" provides a detailed look at this beneficial status.

Roth Conversion Opportunities

Year-end can be an opportune time to consider converting traditional IRA assets to a Roth IRA. While this triggers immediate taxation, it can lead to tax-free growth and withdrawals in the future.

Patricia, anticipating being in a lower tax bracket this year due to the loss of James's income, decided to convert a portion of her traditional IRA to a Roth IRA before year-end.

Valuing the Past, Securing the Future: Year-End Asset Valuation

Proper valuation of estate assets is crucial, not just for estate tax purposes, but also for setting up the basis for inherited assets.

Professional Appraisals

For significant assets like real estate or a family business, professional appraisals are often necessary. These should be completed before filing the estate tax return.

Date of Death Values for Securities

For stocks and bonds, the executor needs to determine the fair market value on the date of death (or alternate valuation date). This often involves averaging the high and low trading prices on that date.

Special Use Valuation for Family Farms and Businesses

Section 2032A of the Internal Revenue Code allows for special use valuation of certain family farms and businesses, potentially reducing estate taxes. However, strict requirements must be met, and the election must be made on a timely filed estate tax return.

Patricia and James owned a small family farm. She worked with an estate attorney to explore whether their farm qualified for special use valuation, potentially saving significant estate taxes should her combined estate with portability ever exceed the $15 million exemption.

Understanding State Estate Taxes: The Other Tax to Consider

While the federal estate tax exemption is now $15 million per person, 12 states plus the District of Columbia impose their own estate or inheritance taxes, often with much lower exemption thresholds:

• Connecticut: $15 million (matches federal)
• Hawaii: $5.49 million
• Illinois: $4 million
• Maine: $6.41 million
• Maryland: $5 million
• Massachusetts: $2 million
• Minnesota: $3 million
• New York: $7.16 million
• Oregon: $1 million
• Rhode Island: $1.775 million
• Vermont: $5 million
• Washington: $2.193 million
• District of Columbia: $4.53 million

If you live in one of these jurisdictions, state estate tax planning remains crucial even if your estate is well below the federal exemption. Your estate planning strategies should account for both federal and state tax considerations.

Looking Ahead: Building Your Year-End Action Plan

As we've journeyed through the complexities of year-end estate and inheritance tax planning, you may feel overwhelmed by the tasks ahead. Remember, you don't have to navigate this alone. Here's a step-by-step action plan to help you move forward:

1. Gather Important Documents: Collect all relevant financial statements, tax returns, and estate planning documents.
2. Review Beneficiary Designations: Ensure all beneficiary designations on life insurance policies and retirement accounts are up to date.
3. Consult with Professionals: Meet with an estate attorney, tax professional, and financial advisor to review your situation and develop a comprehensive plan that accounts for the new OBBBA provisions.
4. Make a Deadline Calendar: Create a calendar with all relevant tax deadlines and required actions.
5. Consider Portability Election: Even if your spouse's estate is well below the $15 million exemption, filing Form 706 to elect portability can provide valuable protection for the future.
6. Explore Charitable Giving Options: Consider if any of the charitable strategies discussed align with your goals and values, keeping in mind the new OBBBA charitable contribution rules.
7. Evaluate Asset Valuations: Determine which assets may need professional appraisal and initiate the process.
8. Review Retirement Account Options: Understand your options for any inherited retirement accounts and plan required distributions.
9. Check State Estate Tax Rules: If you live in a state with estate taxes, ensure your planning addresses both federal and state considerations.
10. Plan for Next Year: Start thinking about ongoing estate management tasks for the coming year.
11. Take Care of Yourself: Remember to balance these financial tasks with self-care and grief support.

Charting Your Course: The Path Forward

As Patricia reviewed her action plan, she felt a mix of emotions. The tasks ahead seemed daunting, but having a clear roadmap provided a sense of control she hadn't felt in months. She realized that each item on her list was not just a financial task, but a step towards honoring James's legacy and securing their family's future. The passage of OBBBA had eliminated some of the urgency she'd been feeling, but it reinforced the importance of thoughtful, comprehensive planning.

Navigating year-end estate and inheritance tax planning after losing a spouse is undoubtedly challenging. It requires attention to detail, understanding of complex rules, and often, difficult decisions. But remember, you're not just managing an estate—you're preserving a legacy, honoring a life shared, and building a foundation for your future.

At Wings for Widows, we understand the unique challenges you face. We're here to support you, provide resources, and connect you with professionals who can guide you through this process. As you tackle these year-end tasks, remember that each step, no matter how small, is a move towards financial security and peace of mind.

The journey ahead may seem long, but you don't have to walk it alone. With the right support and resources, you can navigate this complex landscape, ensuring that your late spouse's legacy is honored and your financial future is secure. Remember, it's not just about managing money—it's about creating a foundation for the next chapter of your life.

As you close out this year and look towards the next, know that you have the strength and resilience to face these challenges. Your journey is unique, but you're not alone. Here's to honoring the past, securing the present, and building a strong foundation for your future.

For additional tax-saving moves to consider alongside your estate planning, refer to our article "Last-Minute Tax-Saving Moves for Widows and Widowers Before Year-End."

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This article is for educational purposes only and should not be considered tax, legal, or financial advice. Tax laws are complex and subject to change. Individual circumstances vary significantly, and what works for one person may not be appropriate for another. Before making any tax-related decisions, please consult with a qualified tax professional, estate planning attorney, or financial advisor who can evaluate your specific situation. The information in this article is current as of October 2025 and reflects tax law in effect for the 2026 tax year. Wings for Widows does not provide tax, legal, or financial advice. We provide educational content and support for widows and widowers navigating life after loss.

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