Regardless of one’s views on the controversial One Big Beautiful Bill Act (“OBBBA”), it undoubtedly provides estate planners with certainty regarding the future of the estate and gift tax exclusion.
Under the 2017 Tax Cuts and Jobs Act, the gift and estate tax exclusion was effectively doubled, but this increase was scheduled to sunset at the end of 2025. That sunset would have lowered the unified gift and estate tax exemption to just over $7 million in 2026, compared to $13.99 million in 2025.
Over the past decade and a half, the unified gift and estate exclusion has been based on a $5 million threshold, adjusted annually for inflation, since 2011. The 2017 Act temporarily increased this base amount to $10 million. For example, the exclusion amount would have been $5.6 million in 2018, but due to the increase, it rose to $11.2 million. But again, this increase was never permanent and was set to expire at the end of 2025.
With the passage of the OBBBA, the estate and gift tax exclusion will be permanently increased to $15 million per individual, indexed for inflation, starting in 2026.
The OBBBA also preserves the current rules on portability elections, which allow a surviving spouse to transfer any unused portion of the deceased spouse’s exclusion amount to themselves. This often enables couples to effectively double the amount that can be transferred tax-free.
Additionally, the OBBBA does not alter the rules surrounding the generation-skipping transfer (GST) tax exclusion, which traditionally mirror the basic gift and estate tax exclusion. As a result, the lifetime GST exemption will also be $15 million per individual beginning in 2026.
It’s important to note that the new permanent increase in the exclusion amount does not erase prior taxable gifts. Many individuals have been making strategic gifts in anticipation of a lower exclusion, following IRS guidance that these gifts would not be clawed back even if the exclusion decreased. In other words: “use it or lose it.” Accordingly, any taxable gifts made during this period of uncertainty will still count against the new $15 million exclusion.
For example, if someone uses their full $13.99 million exemption in 2025, they will only have an additional $1.01 million in tax-free exclusion available if they pass away in 2026.
In summary, we now have certainty around estate and gift tax planning, at least for the near future. This makes it an ideal time for individuals to reevaluate the size of their estate and its expected growth, review any prior taxable gifts made, and ensure their current estate plan is aligned with both their needs and the new legal framework.
Fewer individuals will now need to worry about complex estate and gift tax strategies, so simplifying or removing outdated elements of existing plans may help reduce unnecessary complications. Conversely, those whose estates are or may become taxable can now plan with greater confidence and precision.
About the Author
Andrew M. Brower is a Board Certified Specialist in Estate Planning and Probate Law at Law Firm Carolinas.