OBBBA: Federal Estate Taxation
The One Big Beautiful Bill Act of 2025 changed taxation for many taxpayers in all income tax brackets. Notably, many of the provisions of the Tax Cuts and Jobs Act of 2017 were due to sunset at the end of 2025, including estate tax exemption limits, which were scheduled to drop from 2025's limit of $13,990,000 per individual, to an estimated $7 million.
With the OBBBA, the unified federal estate and lifetime gift tax exemption has been permanently increased to $15 million per individual, $30 million for married couples, indexed for inflation, starting in 2026. This means that the first $15 million of an individual’s estate, or $30 million of a married couple's estate is not subject to federal estate taxation. Amounts over the exemption are subject to a current rate of 40% taxation, which did not change. Inherited assets may also be subject to other forms of taxation such as required minimum distributions of retirement accounts.
While the estate tax is not a concern for most people, owners of businesses or other assets with healthy projected growth rates may want to visit the possibility that their total estate could someday surpass the exemption limit.
Planning opportunities to consider may include restructuring ownership or considering certain trusts, which bring with them a level of complexity as well as expense to create and potentially maintain, among other considerations. An easier solution that we've utilized is life insurance, whereby the death benefit can be received income tax free (it is still counted as part of the estate), is an immediate source of cash to the heirs and can be used to pay any expenses of the estate. With life insurance, one is often able to buy dollars (death benefit) for nickels, dimes or even quarters (the premium/cost of the policy). The risk of life insurance is not waiting too long to establish a policy, and the cost is the premium commitment, which if done properly, will be far less than the guaranteed death benefit that surpasses the insured’s life expectancy.
For the few whose heirs may be subject to a 40% tax, the OBBBA and a good team of advisors can help you strategize with a plan for federal estate taxation.
LouAnn Schulfer of Schulfer & Associates, LLC Wealth Management can be reached at (715) 343-9600 or louann.schulfer@lpl.com TheWealthInformationLady.com SchulferAndAssociates.com
Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
