Understanding the Estate Planning Impacts of OBBBA

Adjusting Estate Plans Amidst Legislative Change

The recently signed One Big Beautiful Bill Act (OBBBA) has made waves in the realm of estate planning, stirring both confusion and concern. While such sweeping changes can be daunting, they also present an opportunity to reshape your estate strategy to take full advantage of the new provisions and prepare for future challenges.

Estate and Gift Tax Exemption Increase

One of the most significant changes is the increase in the federal estate tax exemption. Starting January 1, 2026, individuals can pass on $15 million, or $30 million for couples, without federal estate taxes. This adjustment comes with annual inflation considerations, eliminating previous uncertainties about possible phased reductions. However, it's crucial to remain aware of the potential impact of state-level estate taxes.

Medicaid Reform and Long-Term Care Planning

With $1 trillion in federal Medicaid cuts, coupled with new work or volunteer requirements and stricter eligibility checks, qualifying for long-term care support could become more challenging. It's wise to explore private insurance and asset protection strategies to safeguard your future needs.

Social Security Tax Changes

A temporary deduction of up to $6,000 (or $12,000 for couples over 65) for those under specific income thresholds could mean more seniors see their Social Security benefits untaxed. However, this provision will expire in 2028 unless Congress decides to renew it, so planning around this timetable is crucial.

Medicare Budget Impact

There’s also a delay in implementing key Medicare cost-sharing assistance rules until 2034, paralleled by potential cuts amounting to $490 billion. The possibility of higher out-of-pocket costs and reduced service providers looms if these PAYGO rules take effect, necessitating a proactive assessment of future Medicare-linked expenses.

Fewer Estates Owing Federal Tax

Given the new exemption increase, only around 0.25% of estates will owe federal estate tax. Yet, this doesn’t entirely eliminate concerns over state-level taxes, which remain a reality for many high net-worth individuals.

No Other Structural Estate Tax Changes

Aside from the higher exemption threshold, the overall structure of estate, gift, and GST taxes remains unchanged under OBBBA, thanks to the locked-in provisions of the 2017 Tax Cuts and Jobs Act.

While the OBBBA adds complexity to estate planning, it also opens a window for strategic, proactive planning. It’s a perfect time to review your estate documents, long-term care plans, and tax strategies. Consulting with a trusted advisor can provide personalized guidance tailored to your family's specific financial situation and future aspirations.