One Big Beautiful Bill Act: Estate Planning Insights

Understanding the $15 Million Lifetime Exclusion

The recently passed One Big Beautiful Bill Act (OBBBA) brings significant changes to the landscape of estate and gift tax planning, especially for high-net-worth individuals and families. At the heart of the legislation is the introduction of a new $15 million lifetime exclusion, which becomes effective in 2026 and will be indexed for inflation. This change offers a remarkable opportunity to reduce tax exposure over one's lifetime, as it applies to both estate and gift taxes, allowing for strategic planning that previously seemed out of reach.

A $30 Million Exclusion for Couples

Couples benefit enormously under this new act, with the combined exclusion effectively doubling to $30 million. This provision drastically reduces the tax burden for many families, offering much-needed relief and flexibility in estate planning. By eliminating potential tax liabilities, couples can focus on preserving their wealth and legacy for future generations.

The Risks of the Previous $7.2 Million Threshold

Before the OBBBA, there was concern around the $7.2 million threshold projected for estate and gift taxes. Many families feared onerous tax liabilities that could erode their wealth. The new legislation alleviates these concerns, offering expanded opportunities to mitigate tax burdens effectively and ensure wealth preservation on a larger scale.

Previously Used Exclusions Still Apply

It’s important to note that previously used exclusions continue to count toward the new limits. For instance, someone who utilized $13.99 million worth of exclusions in the past will still gain an extra $1.01 million in 2026. This expansion presents new planning horizons, enabling more strategic and informed decisions for estate planning.

Unchanged Rules for Portability and GST

In the context of tax planning, the rules for portability and the generation-skipping transfer (GST) tax exemption remain unchanged. Portability enables a surviving spouse to benefit from a deceased spouse's unused estate tax exemption, provided a federal estate tax return is timely filed. However, unlike the GST exemption, it remains non-transferable between spouses, highlighting the need for savvy estate planning and professional guidance.

Permanence with a Caveat

While the OBBBA stands to offer a semblance of permanency by lacking a sunset clause, it's crucial to remember that tax legislation can evolve. This inherent volatility stresses the urgency of crafting a robust estate plan while current laws are favorable. Staying informed and proactive can ensure optimal wealth preservation amidst potential legislative changes.

Updates for High Earners and Charitable Givers

Alongside the new exclusions, the OBBBA has solidified certain rules affecting high earners and charitable contributors. The 37% top tax rate remains fixed, and a deduction cap is in place. Additionally, a new rule permits individuals to make cash donations equating to 60% of their adjusted gross income, a noteworthy improvement over the former 0.5% of income threshold. These changes provide further avenues for strategic financial planning and philanthropy.

The Reduced Urgency – But Ongoing Importance – of Estate Planning

One of the immediate benefits of the OBBBA is the elimination of the pre-2025 deadline pressure, which grants individuals and families more flexibility in planning. However, this does not diminish the critical need for ongoing, proactive estate planning to ensure the optimization of wealth transfer and tax minimization.

In summary, while the OBBBA introduces greater stability and expanded planning opportunities, complexity remains, particularly for those who've previously made substantial gifts. Now is a pivotal moment to leverage increased exclusions, reassess existing plans, and connect with advisors for tailored guidance. The time to act is now — ensure your estate plan meets your goals and secures your legacy.