Top 10 Legal Issues Family Offices Should Prioritize in 2026

This alert distills the 10 themes most likely to drive decision-making for family offices in 2026. Our focus is deliberately high‑level.

1. OBBBA: A Comprehensive Private‑Wealth Reset 

The OBBBA¹, signed on July 4, 2025, permanently extends or restructures many Tax Cuts and Jobs Act (TCJA)-era provisions and introduces new material planning tools for private wealth. These changes include permanent individual rate extensions, an increased state and local tax cap through 2029, permanent section² 199A qualified business income enhancements, a new “Trump Accounts” regime, the expansion of section 529 plan rules, qualified small business stock (QSBS) expansion, and wide‑ranging qualified opportunity zone (QOZ) reforms beginning in 2027. 

For family offices, the planning posture shifts from anticipating a 2026 “sunset” to optimizing a more stable, yet rebalanced, regime. That means revisiting entity‑level tax elections, cash‑flow timing for philanthropic vehicles, and compensation models for principals and investment professionals. It also argues for renewed coordination between income‑tax and transfer‑tax strategies, since permanence under the OBBBA allows larger, more deliberate implementations without the urgency that defined the pre‑2026 period.

There are many open questions under the OBBBA. One such question is whether the OBBBA’s amendment of the rules governing itemized deductions under section 68 — in particular with respect to its limitation on the income tax deduction benefits of itemized deductions to 35% for taxpayers in the 37% marginal income tax bracket — has created double taxation of this “cutback amount” for trusts and estates in connection with their deductible distributions to beneficiaries under Internal Revenue Code (IRC) sections 651 and 661, and in connection with their distribution of gross income to charities under section 642(c). The American College of Trust and Estate Counsel (ACTEC) has submitted comments to both US Congress and the IRS highlighting the need for corrective action and clarification of these issues.

2. Transfer Tax Planning: Permanent $15 Million Unified Exemption in 2026

Effective January 1, the OBBBA makes “permanent” the unified federal estate, gift, and generation-skipping transfer (GST) tax exemption of $15 million per individual (indexed from 2027), stabilizing multi‑generational wealth transfer planning. We no longer find ourselves facing the “sunset risk” of the expiration of the temporarily doubled federal estate, gift, and GST tax exemptions after December 31, 2025, which had driven in some cases a “use it or lose it” approach with respect to the temporarily doubled exemptions. That being said, the permanence label does not eliminate legislative risk down the road, and it is possible that a future Congress could scale down exemptions. In addition, state death taxes and the step-up in income tax basis upon death should be considered as well. So proper planning that shifts wealth (or appreciation in wealth) over to irrevocable grantor trusts outside one’s taxable estate is still very much in order — it just does not all have to get done by a specific statutory deadline.

3. The IRS Increases Its Examinations of GRATs: The Elcan Case

In the Elcan case³, the grantor created GRATs and subsequently exercised substitution powers to obtain cash from the GRATs and to re-acquire general partnership interests and S corporation stock that had been contributed to the GRATs. The grantor furnished his promissory note to the GRAT bearing interest at prime plus 1%. These notes that the GRAT trustee received from the grantor were subsequently distributed back to the grantor in satisfaction of required annuity payments that were payable to the grantor pursuant to the terms of the GRAT trust instrument. The final annuity payment could not be fully satisfied with the remaining assets in the GRAT. The husband and wife made the gift-splitting election on their gift tax returns.

The IRS issued deficiency notices to each spouse of $306,929,994 in gift tax and $61,385,999 in penalties, for total deficiencies in excess of $736 million. The IRS notices of deficiency stated that the initial gifts to the GRATs were taxable gifts in their entirety because the grantor’s retained annuity interests were not qualified interests under IRC section 2702. Alternatively, if the retained interests are determined to be qualified interests, the substitution transactions would result in taxable gifts. Specifically, when the grantor transferred notes to the GRATs to re-acquire assets that had been contributed to them, those note transfers would be treated as gifts. The IRS notices did not state why the retained interests were not qualified interests under IRC section 2702 or why the notes given to the GRATs in the substitution transactions were taxable gifts. 20% accuracy-related penalties were assessed under IRC section 6662 because the underpayment was allegedly due to negligence or disregard of rules and regulations.

The taxpayers filed a petition in the US Tax Court opposing this and filed a motion for partial summary judgment on October 1, 2025, which is currently pending. The taxpayers’ legal brief makes three major points in response to the IRS’ contention in the Notice of Deficiency that the annuity interests were not qualified interests under section 2702: 

1. The annuities were indeed “qualified interests” under the unambiguous provisions of section 2702(b)(1).
2. In light of the unambiguous definition of “qualified interest” under section 2702(b), the additional “qualified interest” requirements imposed by Treasury Regulation § 25.2702-3 are:
   1. Irrelevant to determining whether the grantor’s retained annuity interests were “qualified interests.” 
   2. Invalid under the US Supreme Court’s 2024 decision in Loper Bright⁴ and related case law. 
3. The GRAT satisfied the “qualified interest” requirements under Treasury Regulation § 25.2702-3. 

The taxpayer asserted that distribution of the grantor’s notes in satisfaction of the annuity amounts did not violate Treasury Regulation § 25.2702-3(b)(1) and (d)(6), which prohibit a GRAT from issuing its own note in satisfaction of annuity amounts. On January 26, the IRS filed its response in opposition to the taxpayers’ motion for partial summary judgment.

Planning Considerations

The IRS has been increasing its examinations of GRATS. 

The Elcan case comes on the heels of the legal interpretation of the IRS national office in CCA 202152018, in which the IRS treated a GRAT annuity as not being a qualified interest because of the undervalued appraisal used to determine the annuity amounts that were paid by the GRAT over its two-year term. Accordingly, the donor was treated as making a gift equal to the full finally determined value of the shares of stock transferred to the GRAT, without any offset for the value of the donor’s retained annuity payments. The CCA analogized to Atkinson v. Commission, 115 T.C. 26 (2000), aff’d, 309 F.3d 1290 (11th Cir. 2002), which denied an income tax charitable deduction for the creation of a charitable remainder annuity trust (CRAT) because of the manner in which the trust was operated (no annuity payments were ever made) even though the trust agreement met the technical requirements for CRATs. CCA 202152018 concluded that this result was warranted because the donor deliberately used an undervalued appraisal, which constituted an “operational failure” that caused the donor to be treated as not having retained a qualified annuity interest under section 2702.

Commentators have observed that the prohibition against the GRAT’s issuance of a note or similar financial arrangement does not prevent the use of notes issued by other persons (including the grantor or the grantor’s spouse) to satisfy the payment obligation. The IRS’ position under the regulations can also be attacked under the Supreme Court’s Loper Bright decision as not constituting the “best reading” of the statute under section 2702.

In light of the IRS’ position in the Elcan case, consideration should be given to whether taxpayers should continue to use substitution transactions with GRATs that will necessitate the return of promissory notes to the grantor — at least until the Elcan case has been resolved.

4. Trump Accounts: New Tax‑Favored Minors’ Savings Vehicles in 2026

Beginning in 2026, newly authorized “Trump Accounts” for individuals under age 18 feature a $5,000 annual contribution limit (indexed), investment constraints emphasizing diversified or index strategies, a one‑time $1,000 federal credit for certain 2025–2028 births, and a prohibition on distributions before age 18. Trump Accounts will be administered by banks and institutions under forthcoming guidance. 

There is an open question of whether a contribution to a Trump Account qualifies for the gift or GST tax annual exclusion, because such gifts seemingly do not constitute a “present interest” in property under IRC section 2503(b) or any other exception. Failure to qualify for the gift or GST tax annual exclusion would mean that someone who makes a gift to a Trump Account will need to report such transfer on a gift tax return (and pay gift or GST tax if the donor’s lifetime gift or GST tax exemption has already been fully utilized). ACTEC has submitted comments to Congress and the IRS addressing this issue. Hopefully, guidance allaying this concern will be forthcoming later this year.

5. 529 Plan Expansion: Broader Qualified Expenses and Higher K–12 Limits, but Beware

The OBBBA expands qualified education expenses within section 529, raises annual K–12 distribution limits from $10,000 to $20,000 for tax years after 2025, and adds qualified postsecondary credentialing expenses as tax‑exempt distributions — enhancing planning flexibility while preserving tax‑free treatment when used for qualified purposes. 

Although this is very helpful, it is important to note that not all states automatically conform to the federal tax rules that apply to the definition of qualified distributions for section 529 purposes. Accordingly, careful consideration should be given to the applicable state tax rules to ensure that a distribution from the 529 plan under the OBBBA expansion is treated as a qualified distribution for applicable state income taxes as well.

6. QTIP Trusts and Marital Trust Planning: Anenberg, McDougall, and Griffin

Recent Tax Court decisions refine marital trust risk lines. In Anenberg⁵ and McDougall⁶, the court found no deemed gift by the surviving spouse to the decedent’s children (who held a remainder interest in the qualified terminable interest property (QTIP) trust) under section 2519 upon court‑ordered or agreed QTIP trust terminations where the spouse received trust interests. However, the Tax Court in McDougall added a twist, holding that the children made a gift to their father (the surviving spouse) by consenting to give all trust property to the father. How much exactly was the amount of such taxable gift? As to that, stay tuned — this issue is currently being litigated in the Tax Court.

In Griffin⁷, the court denied QTIP treatment for a $2 million bequest absent an affirmative election but allowed a marital deduction for a distinct $300,000 “estate trust” intended to be administered alongside a separate trust established under the decedent’s estate plan.

Taken together, these holdings indicate the need for careful QTIP election practice, consent structuring, and remainder‑holder analysis in connection with both the establishment and early termination of marital trusts. 

7. Estate of Galli: Document and Administer Your Promissory Notes ‘Right’ and You Will Be Rewarded

Estate of Galli⁸ demonstrates the importance of properly documenting and administering an interfamily promissory note. The taxpayer here did it right, as the interest payments on the promissory note were properly paid by the son (borrower) to the mother (lender) when due, and banking records substantiated the transactions. The interest rate on the promissory note was the applicable federal rate for tax purposes in effect at the time that the promissory note was issued. In light of these favorable facts, the IRS’ challenge to the validity of the loan was rejected by the court, and the taxpayers prevailed in establishing that the mother’s loan to her son constituted a valid debt, not a taxable gift.

8. Family Entities and Section 2036: Estate of Fields and Liquidation Rights

The Estate of Fields⁹ decision underscores “bad facts” exposure in funding soon before death, and retained control, with respect to family limited partnerships, triggering section 2036(a)(1) and (2) inclusion and eliminating valuation discounts. The court relied on Estate of Powell’s¹⁰ “in conjunction with” liquidation analysis due to the decedent’s retention of the right as a limited partner to participate in decisions to liquidate the partnership. The court rejected the taxpayer’s attempt to rely on the “bona fide sale exception” to the application of section 2036 due to the absence of a credible substantial non‑tax purpose for the partnership formation and funding and imposed a 20% accuracy-related penalty on the underpayment of estate tax.

In planning with closely held entities, particularly when they do not involve an operating business, entity planning should address non‑tax purposes, governance formalities, proper entity administration, and retained liquidation participation rights head‑on. 

9. QSBS 

Section 1202, originally enacted in 1993 and amended over the years, provides for a partial or complete exclusion of gain of QSBS.

In order for taxpayers to get the benefit of the exclusion under section 1202, the corporation must be a “domestic C corporation” that issued stock after August 10, 1993, and meet certain qualifications to be a qualified small business. This includes an “Aggregate Gross Asset Requirement.” In addition, a shareholder must meet certain holding period requirements with respect to the stock (e.g., five-year holding period) in order for the realized gain to be eligible for exclusion.

The amount of exclusion afforded a taxpayer is limited by the “Per Issuer Limitation.” Further, the percentage of exclusion (i.e., 50%, 75%, or 100%) afforded to a taxpayer depends on the date the taxpayer (or someone who steps into the shoes of the taxpayer) acquired the QSBS from the issuing corporation.

OB3 amended section 1202 in a number of significant ways:

1. It changes the holding period required for realized gain on the sale of QSBS to be considered eligible from solely five years to a three-tiered system that includes three- and four-year holding periods. In contrast to the 100% exclusion that is currently available with a five-year holding period, under OB3, a 50% exclusion is available with a three-year holding period and a 75% exclusion is available with a four-year holding period. This supplements the existing rules permitting section 1045 QSBS rollovers if the QSBS is held for more than six months, but not five years, in which case the shareholder has 60 days to reinvest proceeds into replacement QSBS.
2. The OBBBA also increased the Aggregate Gross Asset Requirement from $50 million to $75 million (with inflation adjustments after 2026). Importantly, except generally where a limited liability company has converted to a C Corporation, the $75 million figure is not based on fair market value but instead based on cash plus the adjusted basis of the company’s assets. The $75 million figure also does not include self-created intangible assets such as goodwill.
3. In addition, OB3 increased the “Per Taxpayer Limitation” within the “Per-Issuer Limitation” from $10 million to $15 million subject to inflation adjustments after 2026. Importantly, if greater, the amount of the exclusion can instead be 10 times basis. Thus, under OB3, the maximum potential exclusion is now increased to $75 million times 10, or $750 million. The use of multiple non-grantor trusts can further multiply this amount.

10. QOZ: Tranche 2 and December 31 Inclusion Event Management

OB3 introduces an enhanced QOZ framework — effectively “Tranche 2” — beginning January 1, 2027, offering five‑year deferral of capital gains, a permanent 10% basis step‑up, tightened designation criteria, and enhanced “Qualified Rural OZ” benefits. In doing so, OB3 basically integrates all of this into the QOZ rules while preserving the often-counterintuitive nuances of the initial QOZ regime under the TCJA. Very importantly, persons who deferred their capital gains by investing in QOZ funds between 2018 and 2026 must plan for the December 31, 2026, deferred gain inclusion date, but may be able to take advantage of reductions in fund value (determined without regard to any discounts for lack of control or lack of marketability) to reduce the amount of their deferred gain. 

Family offices should coordinate with their clients well ahead of the December 31, 2026, inclusion event date to plan for the tax that would come due on April 15, 2027.

[1] P.L. 119-21. The Act’s short title was the “One Big Beautiful Bill Act.” The Act’s short title was removed as extraneous.

[2] Unless otherwise stated, references to “section(s)” or to “Code” are to the Internal Revenue Code of 1986 as amended. References to “§” are to relevant sections of the US Department of the Treasury regulations promulgated under the Code.

[3] Elcan v. Commissioner, Tax Court Docket No. 3405-25 (Petition filed March 14, 2025).

[4] Loper Bright Enterprises v. Raimondo, 603 US 369 (2024).

[5] Estate of Sally J. Anenberg v. Comm’r, 162 T.C. No. 9 (May 20, 2024).

[6] McDougall v. Comm’r, 163 T.C. No. 5 (Sept. 17, 2024).

[7] Estate of Griffin v. Commissioner of Internal Revenue, T.C. Memo. 2025-47 (2025).

[8] Estate of Barbara Galli v. Commissioner, Docket Nos. 7003-20 and 7005-20 (March 5, 2025).

[9] Estate of Fields v. Commissioner, T.C. Memo. 2024-90 (9-26-24) (Copeland, J.).

[10] Estate of Powell v. Commissioner, 148 T.C. 392 (2017).