Understanding the One Big Beautiful Bill Act: Estate Planning

The Era of Legislative Change and Estate Planning

The One Big Beautiful Bill Act (OBBBA), signed into law in July, has introduced significant changes. For many, such sweeping legislative shifts can lead to confusion or concern, especially in areas as sensitive as estate planning. Yet, understanding these changes today can pave the way for more robust long-term financial strategies.

New Estate and Gift Tax Exemptions

Starting January 1, 2026, individuals will be able to pass on $15 million (or $30 million for couples) without incurring federal estate tax, with annual adjustments for inflation. This development marks the end of prior uncertainties surrounding phased reductions, offering a clearer path for future planning.

Navigating Medicaid Reform and Long-Term Care

With federal Medicaid cuts amounting to $1 trillion, alongside new work/volunteer requirements and stricter eligibility checks, qualifying for long-term care support may become more challenging. It is advisable to explore private insurance options and adopt asset protection strategies.

Impact on Social Security Taxes

There's a temporary new deduction of up to $6,000 ($12,000 for couples over 65) for those within certain income thresholds. While this can increase the number of seniors whose Social Security benefits remain untaxed, it's worth noting that the provision will expire in 2028 unless renewed.

Medicare Budget Concerns

Some Medicare cost-sharing assistance rules have been postponed until 2034 with potential cuts of $490 billion looming. These might lead to higher out-of-pocket expenses and decreases in provider availability if PAYGO rules trigger these reductions.

Fewer Estates Subject to Federal Tax

With the new changes, only about 0.25% of estates will owe federal estate tax. However, it’s important to remain aware of various state-level taxes that could still apply to estate transfers in certain jurisdictions.

Enduring Structure of Estate Taxes

Except for the heightened exemption, there haven't been alterations to the structure of estate, gift, and generation-skipping transfer (GST) taxes. The stipulations of the 2017 Tax Cuts and Jobs Act remain in effect, providing consistent frameworks for estate planning.

Embracing Strategic Opportunities

While the OBBBA adds layers of complexity, it simultaneously offers a chance to proactively refine your estate planning. Now is the time to review estate documents, long-term care plans, and tax strategies in light of these revisions. Engage with a trusted advisor to gain personalized guidance tailored to your family and financial circumstances.