ARTICLE | August 28, 2025
Introduction
Estate planning can seem intimidating. There are multiple rules and a whole lot of jargon, all of which make it difficult to figure out the best path forward. Recent changes introduced by the One Big Beautiful Bill Act have reshaped the conversation around estate tax planning. Previously, the estate tax exemption was set to drop dramatically in 2026, which would have brought many more estates within federal tax range. With the new legislation, however, the higher exemption thresholds are here to stay—providing much-needed clarity for individuals looking to preserve and transfer wealth.
The goal of this article is to walk you through what's changed, how it affects you, and what steps you might consider in order to make the most of the new rules.
Key Concepts: Estate & Gift Taxes
What Are Estate Taxes?
Estate taxes are imposed by the federal government (and sometimes by states) on the transfer of a person’s assets at death. The size of your taxable estate is generally determined by adding up the value of everything you own or have certain ownership interests in. If the total amount exceeds the federal exemption, the excess is taxed at rates up to 40%. While this threshold was always a central concern in estate planning, the One Big Beautiful Bill has permanently raised it, changing how many people might approach the process.
What Is the Gift Tax?
The gift tax works hand in hand with the estate tax. It prevents individuals from giving away an unlimited amount of assets during their lifetimes to avoid estate taxes later. You can make gifts without triggering federal gift tax, as long as you stay within the lifetime limit. This lifetime limit is linked to the same amount that is exempt from estate taxes. Now that the new law has elevated the estate tax exemption, it also effectively increases the threshold above which gift taxes apply, giving more flexibility to those who want to transfer their wealth sooner rather than later.
Background: Previous Estate Tax Exemptions
Pre-TCJA (Before 2018)
Before 2018, the federal estate tax exemption hovered around $5 million per individual, with slight annual adjustments for inflation. This meant that an individual could transfer up to $5 million during life or at death without incurring a federal estate tax. For many years, individuals planned their estates around the idea that this $5 million limit might be the standard exemption moving forward.
TCJA of 2017
The Tax Cuts and Jobs Act (TCJA), enacted at the end of 2017, temporarily doubled the exemption from $5 million to $10 million. As inflation adjustments were applied, the effective exemption rose to nearly $13 million by 2025. However, this increase was scheduled to expire at the end of 2025, reverting closer to pre-2018 levels. Many high-net-worth individuals were bracing for an abrupt return to a substantially lower exemption in 2026, which would have significantly changed their estate planning strategies.
The One Big Beautiful Bill Act: Overview
Signed into law on July 4, 2025, the One Big Beautiful Bill Act alleviated uncertainty around the estate tax exemption by making a higher threshold permanent. Rather than reverting to a much lower limit, the new law establishes a flat $15 million exemption for each individual starting on January 1, 2026. Although the TCJA had paved the way for an elevated exemption for a few years, many feared a sudden drop after 2025. Now, individuals and families can plan around a confirmed higher exemption without the looming threat of the old thresholds returning.
Key Point: As of January 1, 2026, the new federal estate tax exemption increases to $15 million per individual (or $30 million for a married couple). Starting in 2027, the exemption will be adjusted for inflation and remain permanent unless there is new legislation.
The estate tax rate remains at 40%, but only the value of an estate that exceeds the $15 million (or $30 million for couples) threshold is subject to that tax. This permanent increase represents an enormous shift in the number of estates that will stay below the tax line too, granting peace of mind to many families who previously found themselves close to the trigger point.
Comparing the New Law to Past Legislation
Advantages Over the Sunset
Before the One Big Beautiful Bill was passed, 2026 threatened to bring the exemption roughly back down to around $7 million per individual. For households whose net worth exceeded that amount, this could have translated to substantial taxes. Now that the new law sets the exemption at $15 million, far fewer families will be affected. This change is widely regarded as beneficial for those looking to solidify their finances and transfer wealth without the fear of a steep drop in the exemption.
Permanence and Planning Certainty
The biggest advantage of the One Big Beautiful Bill is how it removes the looming expiration date. Under the TCJA, individuals felt compelled to race against time and move assets out of their estates before the exemption shrank. The new law lets people take a more measured approach to gifting and estate transfers. While no legislation is written in stone forever—future Congresses can still pass changes—having a stable framework lets families and business owners plan for the long term with less fear of sudden shifts.
Practical Implications for Estate Planning
With a clearer picture of what to expect at the federal level, individuals can reassess their wealth transfer strategies. A higher, permanent exemption opens up new possibilities, but it’s important to use the window wisely.
1. Gifting Strategies
Gifting remains a cornerstone of estate planning, and the higher exemption means you can carve out more of your estate tax-free today. By making lifetime gifts, you also remove any future appreciation from your taxable estate. In other words, not only do you transfer the existing value to the next generation, you also shift all the future growth on those assets out of the estate tax orbit. Some individuals prefer to start with moderate gifts to gauge how beneficiaries handle new assets. Others use this opportunity to make large outright transfers or to fund trusts that benefit children and grandchildren.
2. Trust-Based Strategies
For those who want to maintain some control or structure around how assets are used, trusts often emerge as a top solution. Irrevocable trusts, such as Grantor Retained Annuity Trusts (GRATs), are popular for transferring appreciating assets at little or no gift tax cost. Spousal Lifetime Access Trusts (SLATs) let one spouse set up a trust for the other’s benefit while still removing the assets from both taxable estates. For business owners, establishing a Family Limited Partnership (FLP) can systematically pass interest in a business to heirs while applying discounts to valuations, offering additional tax benefits.
3. Charitable Giving Opportunities
Beyond benefiting children or grandchildren, some people use the higher exemption to free up resources for philanthropic aims. If you feel you’ve already provided for your family, this could be an ideal time to consider more significant charitable gifts. It’s possible to remain anonymous if that suits your preferences. Donor-advised funds, for example, can offer a combination of privacy and flexibility in how your contributions are ultimately used. In many cases, people find satisfaction in seeing the impact of their generosity during their lifetime rather than waiting for a bequest at death.
Impact on Business Owners
Business owners often find estate planning more complex because their wealth is usually tied up in an illiquid enterprise. This means that if an estate surpasses the federal exemption threshold, heirs might need to sell parts of the business or borrow money to meet the tax obligations. With a higher exemption now in place, fewer families will be faced with that dilemma. Nevertheless, owners should still consider establishing trusts or partnerships well before they intend to transfer ownership. This way, the next generation can gradually gain control and you enjoy reduced estate tax exposure. Life insurance plans—especially those held by an Irrevocable Life Insurance Trust (ILIT)—can also supply liquid funds to cover any remaining obligations, ensuring the family business isn’t disrupted.
State Estate Taxes: Additional Considerations
While the One Big Beautiful Bill provides a welcome increase on the federal front, there’s still a patchwork of state and even local rules to keep in mind. Some states levy estate taxes with thresholds much lower than the federal exemption, meaning even if you’re in the clear for federal taxes, you could still face state-level levies. Others impose inheritance taxes, where it’s the heir who must pay. Knowing your state’s rules is critical. If you think your family might be significantly impacted by these additional taxes, strategies such as establishing trusts, gifting property early, or even relocating to a more tax-friendly state could help mitigate the burden.
Action Steps: Preparing Your Estate Plan
The most effective estate planning strategy revolves around proactivity. Now is the time to review your estate documents, including wills and trusts, to ensure beneficiaries and trustees are up to date. Look at how assets are titled, confirm whether you’re making the most of the adjusted exemption for gifts, and check that your plan aligns with any applicable state tax laws. Engaging with qualified professionals—your CPA, estate planning attorney, or financial advisor—can be invaluable in refining your approach. Even though the higher exemption is permanent, changes in your personal circumstances or in future legislation can make routine plan reviews a wise decision.
Conclusion
The One Big Beautiful Bill is a landmark change that makes the higher estate tax exemption permanent. By securing a $15 million threshold for individuals (and up to $30 million for married couples), the new law clears away much of the uncertainty that clouded long-term planning. If you’re aiming to reduce estate taxes and ensure a smooth transfer of wealth, this legislation opens the door to flexible and powerful strategies. Moving assets out of your estate through timely gifts, leveraging trusts, and considering charitable contributions are just a few ways to maximize the benefits. At the end of the day, thoughtful, well-informed planning can help you secure financial peace of mind both for yourself and the generations that follow.