The One Big Beautiful Bill Act (OBBBA) has been dominating the news cycle, but what exactly is it? OBBBA is a tax and spending package that is currently making its way through Congress. The measure has already passed in the House of Representatives, and if passed by the Senate, will head to the President’s desk. While the lengthy bill does a wide-variety of things, we at Nickerson Law Group are paying attention to the estate and gift tax changes within OBBBA. So, what should you be aware of?
Current Law
When someone gives away money or property to someone other than their spouse or to a charity, either during their lifetime or after death, those transfers are subject to a federal tax of 40%. However, there is a certain amount of money that is allowed to be given away tax-free. This is known as the lifetime exemption. This exemption applies to both gifts made while alive and at death. If someone gives away a considerable amount during their lifetime, unless it is to their spouse or to a charity, it reduces how much they can pass on tax-free when they die.
As of January 1, 2025, the exemption is set at $13.99 million per person. Therefore, if everything someone gives away, both during life and after death, adds up to less than $13.99 million, that person won’t owe any federal taxes on those transfers. Married couples can give away double that amount without being taxed because each spouse gets their own individual exemption. Any and all amounts exceeding the exemption will be taxed.
The 2025 exemption amount was put into law by the Tax Cuts and Jobs Act of 2017, but that law is temporary. Unless something changes, the exemption is scheduled to decrease on January 1, 2026 to roughly $7 million, a nearly 50% drop.
The Law if OBBBA is Signed
If OBBBA is signed into law, the exemption decrease will not occur. Instead, on January 1, 2026, the estate and gift tax exemption would increase to $15 million per individual and be indexed to increase with inflation each year. Additionally, this change to the exemption level would be permanent. The tax rates on amounts above and beyond the exemption would remain the same.
Be Prepared for Anything
The permanent increase of the exemption amount may alter what estate planning methods are most appropriate for you. However, OBBBA is not yet law, and it is not guaranteed that these changes will be enacted.
Nickerson Law Group will be closely monitoring OBBBA as it progresses through Congress so that we are prepared to best serve our clients and address their needs.
