The One Big Beautiful Bill Act (OBBBA), signed into law in July, brings with it sweeping changes that may cause confusion or concern, especially in sensitive areas like estate planning. However, while the OBBBA introduces significant alterations, understanding these changes now can pave the way for robust long-term planning. This legislative shift offers an opportunity to adapt strategies, benefiting from new provisions while preparing for emerging challenges.
Estate and Gift Tax Exemption Increase
Beginning 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 change alleviates the uncertainty surrounding previously scheduled phased reductions, offering more clarity and predictability for estate planning.
Fewer Estates Owing Federal Tax
With the new exemption level, only about 0.25% of estates will owe federal estate tax. While this is a relief for many, it is essential to remain mindful of potential state-level taxes that may still apply, requiring attention in estate strategy formulation.
Medicaid Reform and Long-Term Care Planning
The OBBBA introduces $1 trillion in federal Medicaid cuts along with new work or volunteer requirements and stricter eligibility checks, potentially complicating qualifications for long-term care support. It is advisable to explore private insurance and asset protection strategies to ensure sufficient long-term care coverage.
Social Security Tax Changes
The Act also includes a temporary deduction of up to $6,000 (or $12,000 for couples over 65) for those under specific income thresholds, potentially increasing the number of seniors whose Social Security benefits remain untaxed. However, this provision is set to expire in 2028 unless renewed, so planning ahead is vital.
Medicare Budget Impact
The OBBBA delays key Medicare cost-sharing assistance rules until 2034, with potential cuts amounting to $490 billion. This could lead to higher out-of-pocket costs and reduced provider choices if PAYGO rules cause the implementation of these cuts. Vigilant budgeting and strategic planning are advisable to mitigate potential impacts.
No Other Structural Estate Tax Changes
Aside from the elevated exemption threshold, the structure of estate, gift, and GST taxes remains unchanged, maintaining the locked-in provisions from the 2017 Tax Cuts and Jobs Act. Familiarity with these unmodified aspects ensures more secure planning and strategy development.
While the OBBBA introduces complexity, it simultaneously provides a window for proactive and strategic estate planning. We strongly encourage reviewing estate documents, long-term care plans, and tax strategies in light of these changes. To tailor solutions to your unique family and financial circumstances, consider consulting a trusted advisor for personalized guidance.