The recently enacted One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, introduces significant modifications to federal estate, gift, and generation-skipping transfer (GST) tax rules. These updates are likely to impact estate and wealth transfer planning for many individuals and families.
Increased Lifetime Estate & Gift Tax Exemption
- New exemption amounts: Effective January 1, 2026, the federal lifetime exemption increases from $13.99 million (2025) to $15 million per individual ($30 million for married couples with portability elections), with ongoing inflation adjustments.
- Why this matters: Prior to OBBBA, the exemption would have reverted to approximately $7.25 million per individual in 2026, with ongoing inflation adjustments.
- Tax rate: The top federal estate tax rate remains at 40%.
- Pre-sunset gifting: With the exemption increase set for 2026, individuals previously considering making gifts of appreciating assets to irrevocable trusts may consider that plan less important.
- Permanence: As opposed to prior legislation, the estate and gift tax exemptions and rates are permanent and do not “sunset” at some future date. Of course, new legislation by Congress could change these laws.
Annual Gift Tax Exclusion
- The annual gift tax exclusion for 2025 is $19,000 per recipient. Married couples may combine their exclusions to gift up to $38,000 per recipient each year without using their lifetime exemption.
- The annual exclusion amount is indexed for inflation and subject to annual adjustment.
Other Provisions Remaining Unchanged
- Step-up in cost basis: Assets transferred at death continue to receive a step-up in basis. Lifetime gifts retain the donor’s original basis.
- Portability: Unused exemption amounts remain portable between spouses, allowing the surviving spouse to utilize any unused exemption.
Additional Considerations
- The OBBBA also includes modifications to other areas such as clean energy credits, opportunity zones, Medicaid, SNAP, and income taxes. These may affect broader planning considerations for some clients.
- While the exemption increases are described as “permanent,” future legislative or political changes could alter these provisions.
- State-level estate or inheritance taxes still apply in some jurisdictions (e.g., Oregon, Washington). Comprehensive planning should account for both federal and state tax exposure.
It is generally wise to work closely with qualified tax and legal professionals to tailor these strategies to individual goals and to stay informed about ongoing legislative changes that may affect estate and gift planning.
