With the introduction of the One Big Beautiful Bill Act (OBBBA) in July, many individuals find themselves grappling with what these sweeping legislative changes mean for estate planning. While uncertainty may loom, embracing these changes now can fortify your future and enable you to leverage new opportunities as they arise.
Higher Estate and Gift Tax Exemption
Beginning January 1, 2026, individuals can transfer up to $15 million ($30 million for couples) without incurring federal estate taxes, with annual adjustments for inflation. This permanent increase from prior levels eliminates uncertainty around potential reductions in the exemption amount. This shift is a landmark opportunity for families planning their estates.
Fewer Federal Estate Taxes
Following the OBBBA, only about 0.25% of estates will owe federal estate tax. While this is a relief for many, it’s crucial to be aware of state-level estate taxes, which may still apply. Consulting with a tax advisor on local obligations remains pertinent to safeguard your estate.
The Impact of Medicaid Reform
The OBBBA introduces $1 trillion in federal Medicaid cuts, new work or volunteer requirements, and more stringent eligibility checks. As qualifying for long-term care support becomes more challenging, consider exploring private insurance options and asset protection strategies to ensure loved ones receive necessary care.
Changes in Social Security Tax
A temporary provision now allows for a deduction of up to $6,000 ($12,000 for couples over 65) for those within specific income thresholds, potentially increasing the number of seniors whose Social Security benefits remain untaxed. However, remember that this provision will sunset in 2028 unless extended.
The Medicare Budget and its Future
Delays in Medicare cost-sharing assistance rules to 2034 could result in substantial cuts of up to $490 billion. This may lead to higher out-of-pocket costs and a reduction in available providers if federal PAYGO rules trigger these cuts. It's crucial to remain alert to these potential changes.
No Structural Changes to Estate Tax Laws
Beyond the increased exemption, the general structure of the estate, gift, and GST taxes remains unchanged. This consistency builds upon the provisions of the 2017 Tax Cuts and Jobs Act, providing clarity and stability within which to plan your estate direction.
While the OBBBA introduces complexities, it simultaneously opens avenues for proactive, strategic estate planning. Now is the optimal time to review your estate documents, long-term care strategies, and tax plans to align with these new provisions. Reach out to a trusted advisor for guidance tailored to your family's unique circumstances.