Over the past year, we’ve had a noticeable uptick in calls from estate planning and tax attorneys asking the same question in different ways:
“Has this new federal tax law actually changed anything we need to worry about?”
The short answer: yes — especially for clients with rental real estate and closely held assets.
A Quick Story From the Field
“Michael” owns several income-producing properties: a small apartment portfolio, a few single-tenant retail buildings, and interests in two family LLCs that hold rentals. His estate plan was drafted in 2019 and hadn’t been touched since.
On paper, everything looked fine. Under the new federal exemption levels, his estate “shouldn’t” owe tax.
But when we dug into the valuation mechanics, cracks started showing — the kind that trigger IRS scrutiny, family conflict, or both.
What Actually Changed Under the New Federal Law
The One Big Beautiful Bill Act (effective beginning 2026) made several changes that matter directly to estate planning attorneys and valuation professionals:
- Higher, Permanent Federal Estate & Gift Tax Exemption
- $15 million per individual / $30 million per married couple
- Indexed for inflation
- No sunset provision like TCJA
This removed urgency — but not exposure.
- Step-Up in Basis Remains Intact
Rental properties still receive a step-up in basis to fair market value at death. That makes defensible appraisals at date of death more critical than ever, particularly for highly appreciated real estate. - Estate Tax Is Still Alive and Well
Anything above the exemption is still taxed at up to 40%. Poor valuations don’t just create audit risk — they create unnecessary tax. - No Elimination of Discounts or Entity Planning
Family LLCs, minority interests, and lack-of-marketability discounts remain valid — if they are properly supported.
Where Michael’s Plan Fell Short — and How Attorneys and Appraisers Help
Even with a seemingly robust $30M spousal exemption, Michael’s estate plan revealed several gaps that are all too common in rental-heavy, family-LLC portfolios:
1. Estate Valuation Risk on a Closely Held Business
Even when net worth appears below the exemption, improper valuation or missing entity discounts can push a family into taxable territory. Attorneys can ensure defensible valuations, proper entity structuring, and well-drafted buy-sell agreements—turning valuation from a tax afterthought into a legal strategy.
2. Personally Held Rentals Increase Exposure
Michael held rental properties both personally and in an LLC—but without adequate liability protection. A single tenant lawsuit could threaten the estate before the plan even takes effect. Attorneys can advise on structuring ownership and liability shields that isolate risk while keeping estate and tax planning goals intact.
3. Outdated Trusts Miss Critical Planning Points
His old revocable trust simply directed assets to his children. It didn’t account for:
Unequal involvement in the business among heirs
Protection against ex-spouses, creditor claims, or litigation
Impacts of the new, permanent estate tax exemption on prior gifting decisions
A trust isn’t just a container—it’s a legal engine. Attorneys can update trust language to prescribe outcomes, not just beneficiaries, ensuring control, protection, and smooth transitions.
The Bottom Line
Michael’s story illustrates that higher exemptions do not eliminate estate tax risk—especially for owners of rental real estate and family LLCs. For attorneys, the opportunity is clear: coordinate valuation, liability protection, and trust design to create plans that withstand today’s tax and legal landscape.
Where We’re Seeing Plans Break Down
Across rental-heavy estates, we consistently see four issues:
- Over-Simplified Real Estate Valuations
Using tax assessments, broker opinions, or “rule-of-thumb” cap rates for estate planning is an audit invitation — especially now that exemptions are higher and IRS attention is more targeted. - Personally Held Rentals Create Risk
Rental properties held outright (or sloppily through LLCs) increase exposure:- Creditor risk
- Estate liquidity issues
- Inflated estate values with no discount support
- Entity Interests Without Proper Valuation Support
LLC interests are often assumed to qualify for discounts — but without a formal appraisal, those discounts are speculative at best. - Old Trusts + New Law = Misalignment
Older trusts often fail to address:- Control vs. economics for rental portfolios
- Unequal involvement among heirs
- How valuation outcomes affect funding formulas
What Some Attorneys Are Doing Now
From an appraisal standpoint, the smart move is not panic — it’s precision:
- Stress-test rental property values using current income, expenses, and market cap rates
- Formally value entity interests before gifting, death, or restructuring
- Coordinate appraisal timing with trust mechanics and funding clauses
- Document discounts with defensible methodologies — not assumptions
Why This Matters to You
Under the new law, valuation is no longer just a compliance step — it’s the hinge point that determines whether a plan works or quietly fails.
When estate values are wrong:
- Tax projections are wrong
- Trust funding breaks
- Litigation risk increases
- Attorney-client relationships get strained
That’s avoidable — but only if valuation is treated as part of the legal strategy, not an afterthought.
Reference Materials You May Find Useful
- IRS Estate Tax Overview (Form 706): IRS.gov
- IRS Valuation Guidelines (Rev. Rul. 59-60)
- Treasury Regulations §20.2031 (Valuation of Property)
- American Society of Appraisers – Business & Real Estate Valuation Standards
If you’re reviewing plans drafted pre-2020 — especially for clients with rental portfolios, family LLCs, or mixed-use properties — this is the moment to pressure-test assumptions.
We’re always available to be a quiet backstop for your planning process.