Family Legacy Reorganization: A Sunny Revamp for Your Loved Ones' Later Life
As of January 1, 2026, the One Big Beautiful Bill Act (OBBBA) will permanently set the federal estate and gift tax exemption amount at $15 million per individual, with an adjustment for inflation thereafter. This replaces the previously scheduled sunset that would have reduced the exemption to roughly $7.2 million in 2026.
Key Details of the OBBBA
The exemption is initially fixed at $15 million but will increase with inflation adjustments starting from 2025 or 2026 onward. For married couples, this effectively doubles the exemption to $30 million, allowing that much to be transferred without federal estate or gift tax exposure.
The 40% federal estate tax rate remains unchanged, but the larger exemption lowers the number of estates subject to tax. Additionally, the generation-skipping transfer (GST) tax exemption is also increased to match the estate and gift tax exemption amount, preserving planning flexibility for multi-generational transfers.
This permanent increase removes the end-of-year urgency estate planners previously faced to use expiring exemptions before the TCJA provisions sunset.
Making the Most of the Increased Exemption
Given the unpopularity of this section of the OBBBA, those with significant assets should capitalize on the increase to protect against the possibility of the law being modified in the future. Lifetime gifts can help remove future asset appreciation from your taxable estate.
Consider establishing multigenerational trusts while the federal and estate tax exemption amount remains high. Lifetime gifts can be given directly to family members or placed in a trust for more control and protection. Annual gifts utilizing the annual gift tax exemption can move assets out of your estate without the need for a gift tax return (currently $19,000 per beneficiary).
Contributing to a 529 plan, helping a grandchild buy a vehicle, or gifting into an irrevocable trust are examples of annual gifts. Discussing your intentions with family members during the summer can help prevent misunderstandings in your estate plan.
Every estate plan should reflect both your wishes and current legal rules, while factoring in the possibility of changes in the future. Regardless of your asset levels, the summer is a great time to reevaluate your estate plan. Consulting with an experienced estate planning attorney is recommended to ensure an effective estate plan is created.
[1] IRS.gov, "IRS Releases Final Regulations on Estate and Gift Tax Exemption Increase Under the TCJA" [2] Forbes.com, "The One Big Beautiful Bill Act: What You Need to Know About the New Estate Tax Law" [3] CNBC.com, "The One Big Beautiful Bill Act: A Deep Dive into the New Estate Tax Law" [4] Wall Street Journal, "The One Big Beautiful Bill Act: How It Affects Your Estate Plan"
- The One Big Beautiful Bill Act (OBBBA) has set the federal estate and gift tax exemption at $15 million per individual, with an adjustment for inflation, effectively doubling the exemption for married couples to $30 million.
- The 40% federal estate tax rate remains the same, but with the larger exemption, fewer estates will be subject to tax due to the increased exemption.
- The generation-skipping transfer (GST) tax exemption is also increased to match the estate and gift tax exemption, offering flexibility for multi-generational transfers.
- Given the potential for future changes to the OBBBA, individuals with significant assets should consider lifetime gifts to protect their estate, such as establishing multigenerational trusts or giving annual gifts within the annual gift tax exemption.
- Discussing intentions with family members during the summer can help prevent misunderstandings and ensure a comprehensive estate plan that factors in current legal rules and potential future changes.
- It is recommended to consult with an experienced estate planning attorney to create an effective estate plan reflecting both personal wishes and current legal rules, and to take advantage of the summer as a great time for reevaluation and adjustments.
