Federal Estate and Gift Tax After OBBBA: The Permanent $15M Exemption

For nearly a decade estate planners worked under the assumption that the doubled federal exemption enacted by the Tax Cuts and Jobs Act of 2017 would sunset on January 1, 2026. The One Big Beautiful Bill Act (Pub. L. 119-21), signed July 4, 2025, eliminated the cliff. The exemption is now permanent and rises to $15,000,000 per individual ($30,000,000 per married couple) effective January 1, 2026, indexed for inflation thereafter. For 2025 the exemption is $13,990,000 per individual. The "use it or lose it" panic that drove a five-year wave of irrevocable transfers is over.

What the statute now says

OBBBA amended Internal Revenue Code §2010(c)(3) by striking the scheduled reversion to the pre-TCJA basic exclusion amount and substituting a fixed $15,000,000 amount for decedents dying and gifts made after December 31, 2025. The annual inflation index continues to apply under §2010(c)(3)(B), so the exemption will rise above $15M in 2027 and beyond. The maximum gift, estate, and GST tax rate remains 40% under §§2001(c), 2502, and 2641. Portability of the deceased spousal unused exclusion amount (DSUEA) under §2010(c)(4) is unchanged.

What did not change

• Annual exclusion (§2503(b)). $19,000 per donee in 2025, indexed in $1,000 increments.
• Direct payment of tuition and medical expenses (§2503(e)). Unlimited and outside the annual exclusion.
• Section 1014 basis step-up. Property included in a decedent's gross estate continues to receive a basis adjustment to fair market value at death. OBBBA preserved §1014 in full; recurring proposals to repeal step-up were not enacted.
• State-level estate and inheritance taxes. Twelve states plus the District of Columbia impose an estate tax; six states impose an inheritance tax. State exemptions remain far below federal ($1M Oregon and Massachusetts, $2M Rhode Island, $5M Maryland, $7.16M New York for 2025, etc.).

Worked example: the $20M couple

Assume a married couple with a $20M combined estate consisting of $4M home, $11M brokerage, $5M IRA. Both spouses are U.S. citizens and have made no taxable gifts.

Under prior-law sunset assumptions (exemption reverting to roughly $7M per person), the couple faced an expected federal estate tax of approximately $2.4M absent transfer planning. Under OBBBA the combined exemption of $30M comfortably covers the entire estate. Expected federal estate tax: $0. The $300,000–$1,500,000 in legal fees, appraisals, and trustee costs many such couples were quoted in 2023–2024 to "lock in" the higher exemption via SLATs or GRATs would have been entirely unnecessary if they had waited.

Common mistakes

• Treating OBBBA as a reason to undo prior planning. An irrevocable grantor trust funded in 2022 cannot be unwound. The transferred assets are out of the estate, the appreciation is out of the estate, and that is generally beneficial. The frustration is sunk cost.
• Ignoring state estate tax. A New York resident dying in 2025 with a $9M estate pays no federal tax and approximately $590,000 of New York estate tax. Federal permanence does not solve state exposure.
• Forgetting GST exemption. The generation-skipping transfer tax exemption tracks the basic exclusion amount under §2631 and is also $15M per person beginning 2026. Allocation on Form 709 is still required for transfers to dynasty trusts.
• Assuming permanence means forever. "Permanent" in tax legislation means "until the next reconciliation bill." Plan for the law as written; review every two to four years.

Sources

• One Big Beautiful Bill Act, Pub. L. 119-21 (July 4, 2025), §70106 (estate and gift tax exemption): congress.gov/bill/119th-congress/house-bill/1
• Internal Revenue Code §2010, unified credit against estate tax (Cornell LII): law.cornell.edu/uscode/text/26/2010
• Internal Revenue Code §2503, annual exclusion: law.cornell.edu/uscode/text/26/2503
• Internal Revenue Code §1014, step-up in basis: law.cornell.edu/uscode/text/26/1014
• IRS Rev. Proc. 2024-40, 2025 inflation adjustments (including §2010(c) exemption): irs.gov/pub/irs-drop/rp-24-40.pdf

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