All the way back in January of this year, we estate planners were operating under the assumption that a huge change was afoot. By the end of 2025, the law said, the amount that a person could shelter from the estate tax was going to plummet. That’s exactly what the law said, after all. The Tax Cuts and Jobs Act (TCJA) of 2017, which temporarily doubled the federal estate and gift tax exemption, was set to "sunset" on December 31, 2025, meaning the exemption would have been cut roughly in half. We were looking at going from sheltering about $14,000,000 from estate taxes to about $7,000,000. That’s a colossal drop.
Now, though the famous "One Big Beautiful Bill Act" (OBBBA) has been signed into law, and if you were concerned with transferring assets to your heirs at your death with as little taken by taxes as possible, this is a massive win for you. In fact, unless you’re knocking on the door of a $15,000,000 estate (what the exemption amount jumps to next year), you probably don’t have to worry about estate taxes at all. But that doesn't mean you can stop planning. In fact, this new law creates fresh opportunities to review your estate plan and protect your legacy.
One of the biggest changes of the OBBBA is the simple fact that it is permanent. Okay, nothing in Congress is truly permanent – laws can and do change all the time, based on different beliefs in society, technology, and the whims of our elected officials. But the OBBBA doesn’t have a built-in expiration date. That’s one of the landmark features of the law. For the past decade plus, we’ve been dealing with ever-shifting exemption amounts and timelines that made planning for our clients’ deaths that much harder.
Another huge feature is that this law has change built into it. The number a taxpayer can shelter at death, $15,000,000, is itself indexed for inflation, meaning it will go up every year. This detail gives the vast majority of Americans the knowledge that the tax will never reach them. If you have a trust written over 10 years ago, your document is probably still designed to avoid this tax, which you’re statistically unlikely to ever have. This leaves your heirs potentially open to pay more in capital gains, because you may lose a step-up in basis at your spouse’s death,
So where does that leave us – do we even need estate plans anymore? The simple answer is yes. Fully-funded trust-based plans do far more than avoid the estate tax. They allow your loved ones to access your money to take care of you while you’re disabled; they avoid the costly and time-consuming probate process at your death; and they allow you to protect the shares of inheritance for your children or other beneficiaries, so that the money they receive cannot be taken in a lawsuit or divorce. Healthcare powers of attorney allow family or friends to make life and death decisions for you while you’re incapacitated. Taxes are important, but they’re not everything.
So the headline, from our perspective, is that the “One Big Beautiful Bill Act” substantially changed estate planning. Many families will certainly be celebrating it. But it really only changed one facet of a solid trust-based plan. If you want to talk more about these changes, please don’t hesitate to call me at 314-288-0061, or email me any time. daniel.julius@stocklegal.com
