Navigating the New Gift and Estate Tax Exemption Under The One Big Beautiful Bill Act
Published on by Mark Hamad in Advisory, Tax Services, Estate Planning
The latest legislative changes in federal tax law have introduced new opportunities for individuals and families seeking to manage their wealth and plan for the future. The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, codifying provisions that alter inheritance and gifting thresholds in significant ways.
As is often the case with tax reform, these new rules demand a thoughtful review of existing estate-planning strategies to ensure they fully align with the law’s more generous (and permanent) exemption levels. While there is a lot to unpack, it pays to maintain flexibility and remain informed about ongoing legislative discussions that could further shift the landscape.
Understanding the evolution of the gift & estate tax exemption
Federal gift and estate tax rules have chartered a winding path, reflecting changes in political priorities and economic conditions. Before the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, the unified credit (often referred to as the gift and estate tax exemption) was set at $5 million per individual, with modest annual inflation adjustments.
The TCJA drastically increased that baseline exemption, effectively doubling it to $10 million from 2018 onward and indexing it for inflation. By 2025, this inflation-adjusted threshold had reached $13.99 million per individual, and double that for married couples. Nonetheless, the TCJA also contained a “sunset” provision, which would have reverted the exemption back to the pre-2017 levels after 2025 unless further action was taken. Wealthy individuals faced considerable uncertainty, given that any reversion to lower thresholds could have subjected more estates to federal taxation if transfers occurred or a person passed away after the exemption shrank.
For a time, concerns grew that the scheduled reversion would indeed happen. Negotiations in Congress on broader tax and spending issues created an uncertain environment. Then, after the bill narrowly passed the House in May 2025, the Senate took it under review and made several revisions. Ultimately, the OBBBA emerged as a permanent solution that significantly reduces the likelihood of a future rollback, at least until there is another major shift in tax policy.
Key provisions of The OBBBA
Under the new law, individuals can rest easier about the gift and estate tax exemption. Beginning in 2026, the unified federal exemption is permanently elevated to $15 million per individual (or $30 million for married couples), with annual inflation adjustments thereafter. This hike provides clarity for donors and heirs who have long attempted to plan around expiring provisions.
Although the exemption has expanded, it is crucial to note that the annual gift tax exclusion retains distinct requirements. In 2025, the annual exclusion stands at $19,000 per recipient, an amount that also grows periodically based on inflation. Gifts below that annual exclusion do not erode your lifetime exemption, so individuals can shift assets year-by-year without worrying about triggering federal gift taxes. Meanwhile, the unlimited marital deduction remains federal-estate-and-gift-tax-free for spouses who are U.S. citizens (non-citizen spouses must navigate additional rules). Finally, the top federal tax rate for estates above the exemption remains at 40%, making prudent estate planning all the more essential.
Implications for estate planning
- Accelerate lifetime gifting. Use outright gifts, family limited partnerships, or irrevocable trusts to transfer assets (and their future appreciation) out of your taxable estate while the higher exemption is in place.
- Lock in today’s exemption. With no scheduled rollback after 2025, donors can make larger gifts now under simpler rules and greater certainty.
- Confirm portability for married couples. Upon a spouse passing away, ensure an estate tax return is filed to secure any unused exemption (known as the DSUE – or Deceased Spousal Unused Exclusion). Retroactive filings may still be possible for prior estates.
- Leverage advanced trusts. Vehicles such as Grantor Retained Annuity Trusts (GRATs) and dynasty trusts keep future growth outside your estate and can maximize multigenerational transfers.
- Mind state-level estate taxes. State exemptions may differ from the federal threshold, so coordinate planning – or even consider changing domicile – to minimize overall exposure.
Strategic steps to maximize the new exemption
It is wise to begin by taking stock of your existing plans, from wills and trusts to beneficiary designations. Ensure they reflect not only today’s exemption levels but also future growth of your assets. If you have trusts in place, confirm that they are structured to leverage the new thresholds, and consider whether you want to move high-growth holdings into a trust sooner rather than later, capturing their potential appreciation outside your taxable estate.
While lifetime gifts shrink the taxable portion of your estate, there can be trade-offs relating to basis adjustments at death. Carefully balancing the immediate benefits of gifting against the potential step-up in basis for inherited property is a critical analysis point. Take a collaborative approach, one that factors in both estate and income tax consequences, to secure the best long-term results.
Finally, it is essential to remain engaged with ongoing policy debates. Even though The OBBBA promises permanency, federal tax laws can still shift with political changes. Building in flexibility to your estate planning, by including provisions in your will or trust that adapt to new rules, will help ensure you are not caught off-guard should Congress decide to modify the threshold again.
Talk to an expert
The One Big Beautiful Bill’s finalized approach to the gift and estate tax exemption makes it easier for families to plan confidently and take advantage of more generous thresholds. Consulting an experienced advisor will be the best way to ensure that your estate plan remains aligned with your personal goals, investments, and the evolving tax environment. We’ll work with you to determine the best path that fits your situation on a free consultation. As always, we’re here to help.
