Estate tax planning has long been a critical component of financial strategy for high-net-worth individuals and families. And even though recent laws have changed things, planning ahead is still important.
The legislation referred to as the One Big Beautiful Bill Act (OBBBA), passed on July 4, 2025, provides relief for people worried about the end of the estate tax exemption from the Tax Cuts and Jobs Act (TCJA). However, the new law does not remove the need for careful estate planning, it just changes the rules.
Current estate tax exemption
The federal estate and gift tax share a common exemption, which is established in the Internal Revenue Code. Prior to the TCJA, that exemption was $5 million, indexed for inflation. The TCJA doubled the baseline to $10 million, indexed for inflation. As of 2025, the inflation-indexed exemption stands at $13.99 million per person. This means people can gift this amount during their life or at death and not pay federal estate or gift taxes. For married couples, the exemption effectively doubles to $27.98 million, assuming proper planning and portability elections.
The TCJA included a sunset provision that would reduce the exemption back to its prior level of $5 million. With inflation adjustments, this likely would have resulted in an exemption of approximately $7 million starting on Jan. 1, 2026. This pending rollback created a “use it or lose it” urgency for many families. This led to more aggressive gifting and trust strategies to secure the higher exemption before it was gone.
What’s changing in 2026
The OBBBA has dramatically reshaped expectations for 2026 and beyond. Rather than facing the sunset decrease noted above, the new law raises the estate and gift tax exemption to a baseline of $15 million per person starting on Jan. 1, 2026. Unlike the TCJA increase, there is no sunset provision. Starting in 2027, the exemption amount will be indexed for inflation. This can help mitigate the impact of rising costs. The rules for exemption portability to a surviving spouse remain unchanged. This means that an estate tax return must be filed to elect portability, even if the estate is under the filing threshold.
The generation-skipping transfer tax exemption, which applies to transfers to grandchildren and other “skip” persons, also rises to $15 million. This alignment simplifies planning and enhances opportunities for multigenerational wealth transfers.
It’s worth noting that while the exemption amounts have increased, the federal estate tax rate remains unchanged at 40% for amounts above the exemption. This means that estates exceeding the threshold could still face substantial tax liabilities.
Why planning still matters
Despite the higher exemption, estate tax planning remains essential. The 40% tax rate is significant and many individuals, especially business owners, real estate investors, and those with concentrated stock positions, may still face exposure. Additionally, several states impose their own estate or inheritance taxes, often with much lower exemption thresholds. These state-level taxes can create unexpected burdens if not properly addressed.
Additionally, the permanence of the OBBBA provisions is only as secure as the political climate allows. Congress retains the authority to amend or repeal tax laws, and future administrations may seek to revisit the estate tax framework. Planning with flexibility and foresight is key to navigating this uncertainty.
Planning opportunities and strategies
With the urgency of the TCJA sunset behind us, some may assume that estate planning can be put on the back burner. In reality, the current environment presents unique opportunities to optimize wealth transfer strategies.
- Lifetime gifting strategies remain powerful tools for high-net-worth estate planning. By making gifts now, individuals can remove future appreciation from their taxable estates. This is particularly beneficial for assets that have historically shown potential for growth.
- Trust strategies continue to offer robust benefits. Spousal Lifetime Access Trusts (SLATs), irrevocable life insurance trusts, and dynasty trusts can help preserve wealth across generations while providing asset protection and tax efficiency. SLAT trust planning is specifically for married couples, but single individuals can realize the same estate and gift tax benefits through a similar strategy called an Intentionally Defective Grantor Trust (IDGT).
- Charitable giving is another avenue worth exploring. Donor-advised funds, charitable remainder trusts, and direct gifts to qualified organizations can reduce estate tax exposure while supporting philanthropic goals.
Key considerations
Effective estate planning requires coordination across multiple areas of tax law. For example, capital gains tax implications should be considered when transferring appreciated assets. The step-up in basis at death can eliminate capital gains tax for heirs, but gifting during life may forgo this benefit.
Inflation adjustments to the exemption are helpful, but they may not keep pace with asset growth in certain portfolios. Regular reviews of your estate plan ensure that it remains aligned with your financial goals and family dynamics.
Additionally, legislative risk is always present. While the OBBBA provides stability for now, future changes could alter the landscape again. Building flexibility into your plan — such as using powers of appointment or trust protectors — can help adapt to new laws.
Action steps
Even with the estate tax exemption 2026 effective date, now is the time to take action. Consider these steps:
- Review your estate plan: Ensure that your documents reflect current law and your intentions. Outdated plans may include provisions based on older and much lower exemption levels or strategies that no longer apply. Plans drafted prior to the enactment of portability rules in 2011 may lead to a detrimental tax result.
- Engage advisors: Work with estate planning attorneys and professionals to explore trust and gifting strategies tailored to your situation. Stay informed about potential changes to tax laws through a tax professional. Being proactive allows for quick and effective responses if new legislation is introduced.
Planning with confidence
The passage of the OBBBA has provided clarity for many families concerned about the estate tax exemption sunset. With a higher, inflation-adjusted exemption now in place, the urgency of “use it or lose it” has diminished. However, the need for proactive estate planning remains.
Whether you’re looking to preserve family wealth, support charitable causes, or minimize tax exposure, thoughtful planning is the key to achieving your goals. Our team offers comprehensive estate planning services designed to help you navigate this evolving landscape with confidence. Reach out to your wealth advisor for more information.
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