Credit Shelter vs QTIP vs Disclaimer Trust at $15M: Basis (2026)

What the 2025 law changed, and what it did not

Before July 4, 2025, the base figure in 26 U.S.C. 2010(c)(3)(A) was $5,000,000, and subparagraph (C) substituted $10,000,000 only for deaths and gifts “after December 31, 2017, and before January 1, 2026.” Section 70106(a) of Public Law 119-21 replaced the base with $15,000,000 and struck subparagraph (C), the temporary increase. The change applies to “estates of decedents dying and gifts made after December 31, 2025” (section 70106(b)). Rev. Proc. 2025-32, section 2.14, restates it: the Act “amends § 2010(c)(3) by increasing the basic exclusion amount to $15,000,000 for calendar year 2026,” and the generation-skipping transfer exemption under section 2631(c) is also $15,000,000. The amount “will be adjusted for inflation for calendar year 2027 and future years.” The IRS issues that adjustment in a revenue procedure each fall; we had not read the 2027 one on October 21, 2026.

Three things did not change. The marital deduction still defers tax rather than removes it. Portability still has to be elected: 26 U.S.C. 2010(c)(5)(A) says a deceased spousal unused exclusion “may not be taken into account” unless the executor files a return that computes it and elects, and the election is irrevocable. And the Code gives no way to carry the generation-skipping exemption to a spouse: section 2631(a) allows it to “every individual,” to be allocated by that individual or the executor (our reading). Each of those is a reason a plan written for a $5,000,000 world needs a second look, not a reason to keep it.

For the numbers behind the exemption, the state death taxes and the 7,195 returns IRS counted for 2024, see our estate tax exemption guide.

The four tools in one table

Source: the sections named, read on October 21, 2026 (Cornell Legal Information Institute for the Code; eCFR current to October 15, 2026). The right-hand columns are our reading of how the sections combine.

Plans often combine them: a credit shelter trust for a stated amount and a QTIP trust, or an outright gift, for the rest. The documents set the formula (our reading). A formula that funds the trust with the largest amount that can pass free of federal estate tax now means $15,000,000 for a 2026 death, not the figure the document’s author had in mind. See also our revocable vs irrevocable trust guide for how a trust is taxed after a death.

The basis table: a $4,000,000 rental portfolio

The test case (all figures hypothetical; the arithmetic is ours and the script is saved with the data): the first spouse to die owns rental real estate worth $4,000,000 with an adjusted basis (cost less depreciation) of $1,500,000. The second spouse dies ten years later and the heirs sell at once. The federal rate on gain is 23.8%: 20% under 26 U.S.C. 1(h)(1)(D) plus the 3.8% tax of 26 U.S.C. 1411(a)(1). We ignore unrecaptured section 1250 gain, state income tax and any depreciation taken after the first death, all of which raise the trust figures (our reading).

The first death is the same in every structure. Under 26 U.S.C. 1014(a)(1) the basis becomes “the fair market value of the property at the date of the decedent’s death,” so $2,500,000 of gain ($4,000,000 minus $1,500,000) disappears whether the property goes outright, to a QTIP trust or to a credit shelter trust. At 23.8% that step-up is worth $595,000.

The second death is where they split. Section 1014(b)(9) gives the new basis to property “required to be included in determining the value of the decedent’s gross estate.” Assets in the survivor’s estate (outright, or a QTIP trust under section 2044(a)) get a second step-up. Assets in a credit shelter trust are not included, so the heirs keep the first-death basis and carry the gain the trust earned in between.

Source: our arithmetic from 26 U.S.C. 1014(a)(1) and (b)(9), 1(h)(1)(D) and 1411(a)(1); script saved as scripts/arith.py. Basis in the survivor’s-estate column is the value at the second death, so the gain on an immediate sale is zero.

Assets in a credit shelter trust are not in the survivor estate, so heirs keep the basis from the first death and get no second step-up. The disclaimer column shows why the 9-month choice matters: a survivor who refuses half moves half of the growth outside the estate and half of the unstepped gain to the heirs (our reading of section 2518(c)(1), which treats a disclaimer of an undivided portion as a qualified disclaimer of that portion).

Community property changes the first death, not the logic. Section 1014(b)(6) gives the surviving spouse’s own half a new basis when at least half of the community interest was included in the decedent’s estate, so a couple in a community property state can start with both halves stepped up. Our step-up in basis guide covers what is and is not stepped up, and our capital gains guide covers the rates.

When the trust earns its cost back

The tax on an unstepped gain is paid only if the heirs sell and only at 23.8%. The tax the trust avoids is the one on the survivor’s estate. The 2026 comparison per $1,000,000 of growth is $400,000 of federal estate tax (26 U.S.C. 2001(c): $345,800 plus 40% of the excess over $1,000,000) against $238,000 of income tax. That favors the trust only if the survivor’s estate is already over every exclusion. Below it, the estate tax is $0.

Take a couple with $35,000,000 and a 2026 first death, holding the exclusion at $15,000,000 for both deaths to keep the comparison clean:

Source: our arithmetic from 26 U.S.C. 2001(c) and 2010(c); the exclusion is held constant, although the IRS will index it from 2027. The trust saves $1,006,232 of estate tax and costs the heirs $598,708 of income tax if they sell, a net $407,524.

Without growth the two routes tie, so the trust’s federal case is the growth it holds outside, plus two things we cannot price: the generation-skipping exemption the first spouse can allocate to the trust, and the fact that a portability amount is lost if the survivor remarries and the new spouse dies first. The regulation says the last deceased spouse is the one whose unused amount counts, “even if, on the date of the death of the surviving spouse, the surviving spouse is married to another” (26 CFR 20.2010-3(a)(3)).

The trust’s income tax cost

A credit shelter trust is a separate taxpayer after the first death, and income it keeps is taxed at the trust brackets in Rev. Proc. 2025-32 (Table 5): 37% above $16,000, with 3.8% on net investment income above the same amount (26 U.S.C. 1411(a)(2)). A trust that distributes income deducts it (26 U.S.C. 661(a)) and the beneficiary reports it. Same rental income, two taxpayers (our arithmetic; taxable income equal to the amount shown, no deductions, an unmarried survivor):

Source: our arithmetic from Rev. Proc. 2025-32 Tables 3 and 5 and 26 U.S.C. 1411. $200,000 is 5% of the $4,000,000 portfolio. The individual owes NIIT only on income above $200,000. Details: our trust tax brackets guide.

The trust document decides whether the trustee can distribute. A trust that can pay the survivor’s income needs a standard that keeps it outside the survivor’s estate: a power limited by “health, education, support, or maintenance” is not a general power of appointment (26 U.S.C. 2041(b)(1)(A)).

Where the credit shelter trust still works: state estate tax

A federal exclusion of $15,000,000 does not help with a state tax that starts far lower. Several states have a separate tax with its own exclusion, and what matters for this page is whether the survivor can add the first spouse’s unused state exclusion.

Source: the statutes and pages named, read October 21, 2026. The Illinois sheet is the latest we could retrieve (2022); the Illinois exclusion for 2026 deaths should be checked on the Attorney General’s site. Our wider table of 12 states plus DC is in the estate tax exemption guide.

Washington, with the statute’s table

For deaths on or after July 1, 2026, RCW 83.100.040(2)(a)(iii) taxes the “Washington taxable estate” (the federal taxable estate less the $3,000,000 exclusion, and including QTIP property under section 2044) in bands from 10% on the first $1,000,000 to 20% above $9,000,000. At $9,000,000 the tax is $1,490,000; at $6,000,000 it is $910,000. Our Washington estate tax guide has the earlier schedules.

A couple, each spouse owning $6,000,000 in Washington, first death on or after July 1, 2026, no growth (our arithmetic):

Source: our arithmetic from RCW 83.100.020(1)(a)(x) and 83.100.040(2)(a)(iii). The federal tax is $0 in both plans.

Plan B saves $580,000. The trade is basis: a gain of $2,436,975 on the sheltered assets would cost the heirs 23.8% of that sum, equal to the $580,000 (our arithmetic, ignoring the Washington tax that plan A would add on any growth). The Attorney General of Illinois shows the same device in a 2022 example: an estate of $12,060,000 with an Illinois QTIP election of $8,060,000 owes $0 Illinois estate tax and $0 federal estate tax.

Who uses these tools: IRS data for returns filed in 2024

IRS Statistics of Income (Table 1, estimates from a sample, dollar amounts in thousands in the source) counts every Form 706 filed in 2024, mostly for 2023 deaths. The marital and portability lines tell how often couples actually use the machinery above.

Source: IRS Statistics of Income, Estate Tax Returns Filed in 2024, Table 1 (July 2026); shares are our arithmetic. Returns filed in 2024 mostly follow 2023 deaths, when the exclusion was lower.

Two readings (ours). First, the marital deduction is the main tool: it appears on 72.4% of the returns on which no tax was owed, and on 16.4% of the returns that paid. The table does not say why the paying estates used it so little. Second, portability is no longer a niche: 1,020 surviving-spouse estates counted a late spouse’s unused exclusion, 601 of them in the $10 million to $20 million band, where the added exclusion decides whether any tax is due. The figures cover only estates large enough to file or that chose to; a couple below the filing threshold appears in these tables only if the executor filed to elect portability.

Which situations point where

These are the situations in which each answer tends to follow from the numbers above (our reading, not a recommendation).

• Combined estate under $15,000,000, no state estate tax: federal tax is nil whatever the structure. The basis table says the second step-up is the only thing left to win, which points toward assets in the survivor’s estate (outright or QTIP), or a disclaimer left unused.
• Combined estate between $15,000,000 and $30,000,000, no state estate tax: portability covers it if the first estate files in time, so the trust competes on growth, the generation-skipping exemption, remarriage risk and control. The $2,000,000 tie in the $35,000,000 example shows the trust is not needed for the headline number.
• Over $30,000,000, or a fast-growing sheltered asset: growth outside the estate is worth 40% against 23.8%, so the trust can win. Our GRAT guide and family limited partnership guide cover tools used for the same purpose during life.
• A state estate tax with no portability (Washington, Illinois in the sources above): funding a trust to the state exclusion saved $580,000 in the Washington example. Maryland’s portability reduces that need.
• A second marriage or children from a prior marriage: a QTIP or credit shelter trust fixes who gets the remainder; an outright gift does not. Basis is a smaller issue than control there.
• Uncertainty about values or laws at the death: the disclaimer waits 9 months and sets the size afterwards, but only if the survivor has not accepted the interest, and the document must say where disclaimed property goes.

What a reader can do with this

• Read the trust formula. Find the clause that funds the credit shelter trust and see what dollar amount it sends to the trust for a 2026 death. If it uses the largest amount free of federal tax, that is $15,000,000.
• Write the basis down. For each rental or fund interest, list cost, depreciation taken and current value. The gain at 23.8% is the number to set against any estate tax a trust might save.
• Check the state first. If your state has an estate tax, find its exclusion and whether the survivor can add the first spouse’s unused amount. If not, the state tax can be the whole case for a trust.
• Put the dates in the calendar. The estate tax return is due 9 months after death (26 U.S.C. 6075(a)); a disclaimer must be received within 9 months (26 U.S.C. 2518(b)(2)); an estate with no filing requirement has until the fifth anniversary to elect portability under Rev. Proc. 2022-32.
• Ask whether the trust can distribute income. Trust brackets reach 37% above $16,000, so the standard for distributions decides who pays on the rent.
• Do not accept benefits before disclaiming. Under 26 U.S.C. 2518(b)(3) a disclaimant must not have accepted the interest or any of its benefits.

FAQ

Sources, read and saved on October 21, 2026: 26 U.S.C. 1, 661, 662, 1014, 1411, 2001, 2010, 2041, 2044, 2056, 2518, 2631 and 6075 (Cornell Legal Information Institute; section 1014 also from the United States Code, 2024 edition, govinfo.gov); 26 CFR 20.2010-1, 20.2010-2, 20.2010-3, 20.2056(b)-7 and 25.2518-2 (eCFR, current to October 15, 2026); Public Law 119-21, section 70106 (govinfo.gov); Rev. Proc. 2025-32 and Rev. Proc. 2022-32 (irs.gov); IRS Statistics of Income, Estate Tax Returns Filed in 2024, Table 1 (irs.gov, July 2026); Revised Code of Washington 83.100.020, 83.100.040 and 83.100.047 (app.leg.wa.gov); the Illinois Attorney General’s Important Notice Regarding Illinois Estate Tax and Fact Sheet for 2022 deaths; Maryland Tax-General 7-309 (mgaleg.maryland.gov); the New York State Department of Taxation and Finance estate tax page. Sums, comparisons, shares and worked examples are our arithmetic from those documents, with the assumptions stated and the script saved with the data. This is analysis of public documents, not investment, legal or tax advice.