The One Big Beautiful Bill Act and Your Estate Plan
This year, the estate tax exemption is $13.99 million per person. Before the passage of the OBBBA, the exemption was scheduled to revert back to about $7 million per person. Under the OBBBA, the transfer tax exemptions are now permanently increased to $15 million (annually indexed for inflation) for anyone who passes in 2026. A decedent with assets that exceed the exemption will be taxed at an effective rate of 40%.
The One Big Beautiful Bill Act and Estate Taxes
For example, before the OBBBA, if a person passed away in 2026 with a net estate of $18 million, then $7 million would be exempt from the estate tax. The remaining $11 million would be taxed at 40% resulting in a $4.4 million estate tax. The decedent’s beneficiaries would receive $13.6 million of the $18 million estate. With the passage of the OBBBA, the same beneficiaries would instead receive $16.8 million. If the decedent was married, the estate tax exemption is combined and the total exemption for both spouses is $30 million.
The OBBBA now removes the uncertainty estate planners face when helping clients. Clients looking to minimize estate taxes can now take advantage of the increased exemption and remove appreciating assets from their own estates to, for example, fund dynasty trusts. Further, clients can now focus more on income and property taxes to minimize the burden on future generations.
Other Significant Changes Under the OBBBA
The TCJA reduced tax rates for individual income taxes that were also set to expire at the end of 2025. The OBBBA made the tax cuts permanent.
The TCJA also introduced a cap on state and local tax (SALT) deductions. Before the TCJA cap, taxpayers who itemized deductions could also deduct certain state and local taxes. This included state and local income and sales taxes and property taxes. In states like California with high state income taxes, the unlimited SALT deduction was particularly valuable. Beginning in 2018, the TCJA capped the SALT deduction at $10,000 per year.
The cap led to states passing legislation, which allows business owners to deduct state income taxes at the entity level (often referred to as the PTE Election). The OBBBA not only increased the SALT cap to $40,000 but preserved the PTE Election.
Conclusion
Despite the proclaimed permanence of the tax updates under the OBBBA, the changes are only permanent to the extent that they are not set to expire. Like President Trump, a future candidate will likely campaign on the promise of changing the tax code.
Tiffany K. Chiu is a Partner at Modern Wealth Law, APLC. Tiffany is a skilled bilingual (Mandarin and English) estate planning attorney who caters to the needs of individuals, families, and small business owners in Orange County. She has extensive experience in drafting documents related to formation, financing, reorganization, conversion, and dissolution of joint ventures, partnerships, limited liability companies, and corporations.
