Impact of the One Big Beautiful Bill Act on Estate Planning
On July 4, 2025, amid the celebrations of American independence, President Trump enacted a significant piece of legislation known informally as the One Big Beautiful Bill Act. This comprehensive act reinforces and extends key provisions from the 2017 Tax Cuts and Jobs Act (TCJA) and introduces substantial revisions to the Internal Revenue Code and federal tax law. Following a narrow margin vote, the Act passed through a Republican-majority House and Senate, marking a pivotal moment in tax policy reform that spans approximately 870 pages.
Key Changes in Federal Estate and Gift Tax Exemptions
One of the standout features of the Act is its permanence regarding federal estate and gift tax exemptions. For the year 2025, the federal estate tax exemption reaches an unprecedented $13.99 million per person. Starting in 2026, this exemption will rise to $15 million per person and will continue increasing annually, adjusted for inflation. Remarkably, this change is permanent; there is no built-in sunset clause, and adjustments can only be made by future legislation from Congress and the President.
Implications of the New Exemption Threshold
Previously, the estate tax exemption was slated to revert to pre-TCJA levels of about $5 million per person (approximately $7.2 million when adjusted for inflation) after January 1, 2026. Consequently, the Act not only averts this reduction but also makes the inflation-adjusted exemption a lasting feature of federal tax law.
Higher exemptions lower the potential federal estate tax burden that heirs may face, thus increasing the capital they can inherit. Consider the exemption as a “coupon” you can redeem during your lifetime. Each U.S. citizen or permanent resident can utilize this “coupon” at any point to exclude gifted assets from taxes. If any portion of the coupon remains unused by the time of your passing, it transfers assets to heirs without additional tax. With the new Act, a married couple can now shield up to $30 million from their taxable estates during their lifetimes.
Assessing Your Estate Plan: Do You Need Changes?
Importance of Continued Estate Planning
Estate planning remains a vital component of financial strategy, ensuring asset protection, minimizing probate complications, and implementing gifting strategies to lower taxable estates. Notably, the One Big Beautiful Bill Act does not modify the foundational estate planning documents: Last Will and Testament, Power of Attorney for Property, Power of Attorney for Health Care, and Revocable Trust.
Action Items Based on New Exemptions
For individuals that have already made substantial gifts nearing the exemption limits in previous years, there’s a unique opportunity to increase gifting capacity in 2026 by up to $15 million. Making gifts now rather than deferring until death is strategically advantageous because it eliminates both the current value and all future appreciation value from the taxable estate. This action can significantly mitigate estate taxes and optimize the use of your exclusion “coupon.”
Consider channeling gifts into an irrevocable trust for enhanced asset protection and improved income tax efficiency.
Strategies for High Net Worth Individuals
For high-net-worth individuals, the current legislative landscape allows for additional estate planning flexibility. Although the sunset deadline of December 31, 2025, has passed, proactive planning remains essential. Consult with an estate planning attorney from firms like Chuhak & Tecson, specializing in Estate Planning & Asset Protection, to explore strategies that can effectively reduce or eliminate federal estate tax liabilities. The ongoing legal framework provides a unique chance to reposition appreciable assets from your estate, factoring in the potential for future law changes.
For Americans with modest estates, this new law primarily serves to reduce or eliminate potential federal estate taxation.
Caveats for Illinois Residents
While the federal estate and gift tax exemptions have increased significantly, it is crucial for Illinois residents to be aware that the Illinois estate tax exemption remains stagnant at $4 million per person. This discrepancy suggests ample estate planning opportunities specifically for Illinois homeowners to reduce their taxable estates.
Conclusion
The One Big Beautiful Bill Act presents an array of changes with profound implications for estate planning. By understanding these changes, individuals can take decisive actions that will optimize their estate plans and ensure greater wealth transfer to their heirs. Engage with a qualified estate planning professional to navigate this evolving landscape and seize the benefits of the current laws while they last.
