How the OBBBA Estate and Gift Tax Changes Affect Estate Planning

Signed into law by President Donald Trump on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) introduced significant changes to the federal estate and gift tax, including permanently raising the lifetime gift and tax exemption to $15 million per individual. Below are key provision changes to be aware of and how they may impact your estate and gift tax planning.

Increased Federal Estate and Gift Tax Exemption

The Tax Cuts and Jobs Act (TCJA) of 2017 temporarily doubled the estate and gift tax exemption. Adjusted for inflation, the 2025 estate and gift tax exemption is $13.99 million for individuals and $27.98 million for married couples filing jointly. These annual increases were set to expire in 2025 and revert to pre-TCJA indexed levels of approximately $7 million for individuals and $14 million for married couples in 2026.

However, effective January 1, 2026, the OBBBA permanently increased the federal estate and gift tax exemption to $15 million per individual ($30 million for married couples filing jointly), with annual inflation adjustments to take effect beginning in 2027. The generation-skipping transfer tax (GST) has also been adjusted to align with the higher exemption thresholds. The top federal estate, gift, and GST tax rate remains at 40%.

State-Level Estate Tax

Each U.S. state has its own estate tax rules; some states have no estate taxes, while others have lower exemption amounts. A few states follow community property law, which has unique characteristics. Many states impose separate estate taxes with exemption amounts that are lower than the federal level. For example, the estate tax exemption is $5 million in Maryland and $4.87 million in D.C. Some states have no estate tax, such as Delaware and Virginia. In contrast, other states, like Pennsylvania, have inheritance taxes. This means state-level estate taxes may still apply even though federal estate taxes do not.

Portability of the Exemption to the Surviving Spouse

The portability of unused exemption amounts to the surviving spouse is not a new concept, but it is often overlooked. The election to transfer any unused exemption amount to the surviving spouse is made by filing an estate tax return. Even if an estate is below the exemption amount, filing an estate tax return may still be required to elect portability.  States may also follow the portability of the unused exemption amount, which may require filing a state estate tax return.

Proactive Steps to Secure Your Legacy

Given the increased exemption amount, it may be beneficial to revisit your estate and gift planning and documents. Estate and gift tax laws are complex, and the interplay between federal and state legislation will continue to bring challenges. Capitalizing on these opportunities, many of which are time-sensitive, takes careful planning. If you have any questions or require assistance, please don’t hesitate to contact us using the form below.