On July 4, 2025, the One Big Beautiful Bill Act was signed into law. For estate planners, the bill brought certainty to the uncertainty surrounding the federal estate tax exemption. The 2025 estate tax exemption is $13,990,000. If Congress had not acted, the exemption would have been cut approximately in half starting in 2026.
The new law permanently increases the exemption to $15 million as of January 1, 2026. Starting in 2027, the amount will then be adjusted yearly for inflation. Couples who are married will be able to pass $30 million to their beneficiaries free of federal estate tax. At a 40% tax rate, that is a $12 million tax savings.
Apart from the permanent tax savings, what does this mean for your estate planning:
- Top off gifts. If you have made significant gifts in the past but haven’t kept up with the annual increases to the exemption, now is the time to top off those gifts. Starting next year, you will have an extra $1,010,000 in exemption to gift. Moving forward, every year you will be able to increase your gifts by the increased exemption amount.
- Take the plunge. If you haven’t gifted yet, what are you waiting for? Gifting to the next generation removes the assets from your taxable estate and allows them to grow free of estate taxes at the next generation. Many high-net-worth clients have not made any gifts. Often, their reasoning is that the $15M is locked in and still available to them, so why gift? However, gifting removes the growth of the gift from your estate. If by the time you die, that $15M has increased to $20M, you have effectively removed $20M to your heirs free of estate tax.
- Test drive your heirs. Gifting can also allow you to glimpse how your children will react to the money. Some clients are pleasantly surprised at the smart decisions their children make, while others are not. Whichever the case, armed with that knowledge, you can then update your estate plan accordingly.
- Consider charitable planning. Some clients express feeling overwhelmed by the amount of wealth they have amassed. They never imagined accumulating so much money. Many have amply provided for their children and grandchildren and do not want to leave them any more money. If this sounds familiar, consider taking advantage of your good fortune and the monies your children will save with the new permanent tax savings by increasing the amount you leave to charity.
- Go for anonymity. If charitable planning sounds appealing but you are concerned about maintaining privacy, consider making your gifts anonymously. Many community foundations and donor advised funds will allow you to choose what programs you would like to benefit while remaining anonymous.
The One Big Beautiful Bill locks in the amount you can leave free of estate taxes. Make sure you have maximized your planning opportunities for tax savings whether your goal is to get the most to your heirs or leave a charitable legacy.
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