Congress recently passed H.R. 1 (also known as the “One Big Beautiful Bill Act”) introducing significant updates to both individual and business tax laws. Notably, one of the most impactful changes affects the federal estate and gift tax exemption.
The Current Landscape:
Under previous law, individuals who pass away in 2025 are entitled to a federal estate and gift tax exemption of $13.99 million per person (or nearly $28 million for married couples using portability).
Under the original law which was passed through the Tax Cuts and Jobs Act, the exemption was scheduled to revert to pre-2018 levels: around $5 million per person (adjusted for inflation) starting in 2026.
However, the new legislation that was just passed on July 4, 2025 changes that.
The Future Landscape:
Starting in 2026, the federal gift and estate tax exemption will be reset to a base of $15 million per person, indexed for inflation each year going forward.
That means that individuals who die in 2026 will be able to transfer up to $15 million during life or at death, free of federal gift or estate tax. For married couples, this exemption is doubled to $30 million, with the election of portability. Barring any changes by a future administration, this exemption amount will remain in place going forward.
What this Means for You
With the higher exemption now locked in beyond 2025, there are several considerations for how this could affect you and your estate plan.
The Federal Estate Tax will continue to impact ultra high-net worth individuals and families, with assets exceeding $15 million for an individual (or $30 million for couples).
Even if you fall under this threshold, this is still an ideal time to review and potentially update your estate planning documents, particularly if your plan was created before 2018 or includes complex marital trust planning aimed at preserving exemptions that are no longer as relevant.
In short, there are several considerations that you may wish to consider revisiting regarding your estate plan:
- Marital and bypass trust planning (commonly called A/B trusts) was once widely used to preserve each spouse’s estate tax exemption when the exemption was much lower. Today, with portability and a higher exemption, these trusts may add unnecessary complexity or restrict a surviving spouse’s access to assets
- Outdated trust terms may no longer align with your current net worth, family structure, or tax exposure.
- Gifting strategies and asset valuations should be reviewed for those who may still be subject to the estate tax under the new 2026 rules.
- Income tax planning strategies – With the higher estate tax exemption, which is now currently permanent, the focus for most individuals will now be on implementing income tax planning strategies to take advantage of the step up in income tax basis when someone passes.
Summary
While the updated legislation significantly reduces the number of individuals and families affected by the federal estate tax, this is a good time to review your estate plan. Many older documents were built around strategies to avoid estate tax under much lower exemption limits. Now, those strategies may be unnecessary or counterproductive, adding administrative complexity without providing real tax savings.
To review your current estate planning documents or guidance on establishing a new plan, contact Jeff Cohen and Mara Peterson.
