Federal Estate Tax Exemption Under the One Big Beautiful Bill Act
The recently enacted One Big Beautiful Bill Act has significantly changed the landscape of estate planning by making the federal estate, gift, and generation-skipping transfer (GST) tax exemptions permanent and increasing them to a new, higher level. This new law, signed on July 4, 2025, provides welcome clarity and opportunity for individuals and families concerned about wealth transfer.
Key Takeaways of the New Law
Previously, the Tax Cuts and Jobs Act (TCJA) of 2017 had temporarily doubled the estate tax exemption, but this provision was scheduled to sunset, or expire, at the end of 2025. This sunset would have caused the exemption to revert to a much lower, pre-TCJA amount. The One Big Beautiful Bill Act repeals this sunset provision and replaces the temporary exemption with a new, permanent one.
Here's a breakdown of the new exemption amounts:
Individual Exemption: The exemption increases to $15 million per person.
Married Couples Exemption: For married couples, the exemption increases to $30 million.
These new amounts take effect on January 1, 2026, and, even better, they will be indexed for inflation in subsequent years, starting in 2027. This provides much-needed stability and predictability for long-term financial planning.
What This Means for Your Estate Plan
With the increased exemption, many people who were previously concerned about federal estate tax will now find that their entire estate can pass to their heirs tax-free. For those with estates valued near or above the new threshold, the act offers a larger cushion against tax liability.
Even if you previously utilized a portion of your exemption, the new law gives you a renewed opportunity to make additional tax-free gifts. For example, an individual who fully used the $13.99 million exemption in 2025 will have an additional $1.01 million of exemption to use beginning in 2026.
While the "use it or lose it" urgency before the end of 2025 has been eliminated, it's still crucial to review your existing estate plan. Many plans may have been drafted with the previous, lower exemption in mind, and the new law could affect how your assets are distributed or to which trusts they are allocated.
Beyond the Federal Exemption
It's important to remember that the One Big Beautiful Bill Act only affects the federal estate tax. Many states have their own separate estate or inheritance taxes, and the new federal law will not change those state-level rules. We can help you understand how your state's tax laws interact with the new federal exemption to ensure your plan is comprehensive and effective.
The new law offers a powerful opportunity to review and update your estate plan to reflect your goals and maximize tax savings. It's a great time to consult with an estate planning attorney to ensure your documents are aligned with the new legislation and your personal wishes.
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