Understanding the One Big Beautiful Bill Act: A New Era for Estate Planning

Estate planners have long anticipated a significant reduction in the federal estate and gift tax exemption, which was set to take effect at the end of 2025. Under the 2017 Tax Cuts and Jobs Act (TCJA), the exemption had doubled to historic highs but was scheduled to decrease to approximately $7 million per person in 2026. However, in July 2025, Congress made a pivotal change. President Trump signed the One Big Beautiful Bill Act (OBB Act) on July 4, 2025. This legislation permanently raised the federal estate, gift, and generation-skipping transfer (GST) tax exemptions to $15 million per individual ($30 million for married couples), with inflation adjustments beginning in 2027. This new law eliminates the scheduled “sunset” and creates a fresh planning landscape for trustees and high-net-worth families.

From Sunset to Sunrise: Key Changes under the OBB Act

A Permanent, Higher Exemption

Before the OBB Act, the estate and gift tax exemption for 2025 was $13.99 million per person. The OBB Act raises that exemption to $15 million per individual for estates of decedents dying and gifts made after December 31, 2025. It also indexes the exemption for inflation starting in 2027. Importantly, there is no expiration date on this new exemption, meaning it does not automatically revert at a future date, as the TCJA exemption would have. The federal estate, gift, and GST tax rate remains 40 percent, and unused exemption is still portable to a surviving spouse.

Comparison to the Prior Law

Under the TCJA, if Congress had taken no action, the exemption would have reverted to roughly $7 million per individual on January 1, 2026. This reduction would have exposed an additional $6.61 million of wealth per person to the 40 percent estate tax. Many families rushed to make large gifts before the deadline. The OBB Act removes that pressure by making the increased exemption permanent and increasing it further to $15 million. Those who have already used most or all of their lifetime exclusion now gain additional exclusion room in 2026 and beyond.

Other Unchanged Features

• Gift tax annual exclusion: The OBB Act keeps the annual exclusion amount unchanged at $19,000 per donee in 2025.

• Portability: Any unused estate/gift tax exemption continues to be portable to a surviving spouse.

• GST tax: The generation-skipping transfer tax exemption increases to match the higher estate and gift tax exemption.

• Estate tax rate: The top federal estate, gift, and GST tax rate remains 40%.

  
  

State-Level Considerations

While the federal exemption has increased, state estate tax laws vary significantly. Connecticut automatically matches the federal exemption, so its estate and gift tax exemption will also rise to $15 million after 2025. Other states may not follow suit; for example, New York’s estate tax exemption is currently $7.16 million, with a “cliff” that phases out the exemption entirely for estates exceeding 105% of that amount. Although New York does not impose a gift tax, gifts made within three years of death are added back to the estate for state tax purposes. Therefore, trustees should review state law when planning large gifts or bequests.

Why Planning Still Matters

The OBB Act’s increase and permanence provide much-needed certainty, but they do not eliminate the need for proactive estate planning. Several reasons remain for trustees to engage in thoughtful planning:

• Future legislative changes: Although the new exemption has no sunset, Congress can always change tax laws. Future control of Congress or subsequent repeal legislation could lower the exemption. Planning now, while the law is favorable, protects against future reductions.

• State taxes: Many states still impose estate or inheritance taxes with lower exemptions than federal law. Gifts that avoid federal tax could still trigger state taxes.

• Asset growth: Transferring appreciating assets to trusts removes future growth from the estate. Even with a high exemption, assets can quickly exceed $15 million for individuals with significant real estate or business interests.

• Family goals and asset protection: Trusts provide control over distributions, creditor protection, and preservation of family wealth across generations. These benefits remain regardless of the exemption amount.

• Complex asset structures: Family businesses, real estate partnerships, and investment funds often require careful planning to manage voting and cash-flow rights. Irrevocable trusts can be used to divide ownership while maintaining management control.

  
  

Planning Strategies for Trustees under the New Law

1. Re-evaluate Gifting Strategies

With the exemption rising to $15 million, families may adjust their gifting plans. For donors who have already used much of the $13.99 million exemption, the OBB Act provides additional exemption space starting in 2026. Trustees should collaborate with advisors to determine whether to make gifts now or wait until the new exemption applies. Consider gifting assets likely to appreciate in value, such as private equity or real estate interests, so that future growth occurs outside the taxable estate.

2. Continue Using Advanced Trust Structures

Irrevocable Life Insurance Trusts (ILITs), Dynasty Trusts, and Spousal Lifetime Access Trusts (SLATs) remain powerful tools. Even with a higher exemption, these trusts can protect life-insurance proceeds, lock in GST exemption, and allow indirect access to gifted assets. The higher exemption means larger funding amounts can be contributed without tax. For example, a married couple could contribute up to $30 million to a dynasty trust in 2026, allocating GST exemption to shield future growth from tax.

3. Coordinate with State Tax Planning

Because some states do not match the federal exemption, trustees should coordinate gifts and bequests to minimize both federal and state taxes. This may involve using state-specific credit shelter trusts, making gifts to out-of-state beneficiaries, or moving assets to jurisdictions with favorable rules.

4. Don’t Neglect Basis and Income-Tax Considerations

Larger lifetime gifts remove assets from the estate but do not receive a step-up in cost basis at death. Trustees should balance the estate tax savings against potential capital-gains tax when beneficiaries later sell the gifted asset. A higher exemption provides flexibility to keep low-basis assets in the estate for a future step-up while gifting assets with high basis or those expected to appreciate dramatically.

5. Review and Update Existing Estate Plans

Plans drafted when the exemption was expected to drop to $7 million may contain formulas or distribution provisions tied to that lower number. Trustees should review these documents with counsel to ensure they produce the intended result given the new $15 million exemption. In some cases, formula gifts based on the exemption amount could inadvertently overfund certain trusts or disinherit beneficiaries.

Illustrative Example

Before the OBB Act: Jane has a $25 million estate and had used her entire $13.99 million exemption by December 31, 2025. Without legislative change, the exemption would drop to $7 million in 2026, leaving $18 million subject to tax at 40%. Her estate would have owed about $7.2 million in federal estate tax.

After the OBB Act: Because the exemption increases to $15 million in 2026 and does not sunset, Jane gains an additional $1.01 million of exemption. Her taxable estate would be $9.99 million, resulting in a $4 million estate tax. If Jane had not previously used any exemption, she could shelter $15 million in 2026, leaving $10 million taxable. Though the urgent deadline has been lifted, planning remains critical to minimize taxes and align with her family’s goals.

Conclusion

The One Big Beautiful Bill Act dramatically changes the estate-planning landscape by permanently increasing the federal estate, gift, and GST tax exemptions to $15 million per individual and eliminating the planned 2026 sunset. While this provides welcome certainty and additional capacity for tax-free wealth transfer, trustees must continue to plan carefully. State taxes, potential legislative changes, asset growth, and family dynamics all still require thoughtful strategies. By staying informed and revising existing plans, trustees can leverage the new law to protect family wealth and fulfill their fiduciary obligations.

In this evolving landscape, it is crucial to remain proactive. The new exemption offers opportunities, but it also necessitates a careful approach to trust administration and estate planning.