The recently passed One Big Beautiful Bill Act (OBBBA) makes the 2017 increase to the Federal estate tax exemption permanent. This provides helpful certainty for estate tax planning.
In 2017, the Tax Cuts and Jobs Act (TCJA) made a number of changes to the tax code, including a doubling of the exemption that was in effect at the time. However, the bill included a “sunset” provision, where the doubling of the exemption would expire starting January 1, 2026. With the 2025 exemption currently at $13,990,000, that meant that in 2026 the exemption would have dropped to approximately $7 million (depending on the inflation adjustment). The new law changes that.
OBBA sets the 2026 Federal estate tax exemption to $15,000,000, to be indexed to inflation each year thereafter. This new increased Federal exemption does not expire, and is permanent. The generation skipping transfer (GST) tax exemption is also being permanently increased to match the Federal estate tax exemption. The estate tax rate remains as is (40%), and there were no changes to popular estate tax planning techniques such as Qualified Personal Residence Trusts, Grantor Retained Annuity Trusts, and advanced discount gifting techniques.
The increased Federal exemption creates more planning certainty for those with assets in this range. Now can be an opportunity to move forward more confidently with estate tax planning, without the uncertainty of a sudden drop in the exemption complicating the plan.
It is important to remember that the New York estate tax exemption was not affected by this new Federal law. The 2025 New York estate tax exemption remains at $7,160,000, and is set to be adjusted for inflation in 2026 as it has been. The New York estate tax rate is lower than the federal estate tax rate of 40%; the state rate starts at 5% and goes up to 16%.
However, New York has an estate tax “cliff”. Unlike the Federal tax, which taxes only the amount by which the estate exceeds the exemption. New York taxes the entire value of an estate that exceeds the exemption (by more than 5%) from the first dollar. In addition, portability (where spouses can more easily use each other’s exemptions) is not available to married couples to mitigate New York estate taxes.
For those with assets that approach either the Federal or New York estate tax exemptions, it is essential to plan. Failure to properly plan may lead to unnecessary estate taxes in the hundreds of thousands or even millions of dollars. Contact the experienced estate planning lawyers at Kurre Schneps today to discuss how we can assist you in putting together a comprehensive estate plan that is tailored to your situation.
