Anytime I do an estate planning presentation, the topic of the federal estate tax is one on the minds of many in the audience. In July, the One Big Beautiful Bill Act included an important provision permanently increasing an individual’s lifetime exemption to $15 million.
Today, we are going to just hit the high notes of the estate tax and the change to the law included in the One Big Beautiful Bill. For more information on the estate tax, click here for a podcast episode I did with Kitt Tovar. (Do note this podcast episode was recorded in 2020, so the details about the current lifetime exemption amount will not be up to date, but the information about how the estate tax functions and tools to avoid liability is still very relevant.)
Photo by Erin Minuskin on Unsplash
What is the estate tax?
The federal estate tax (sometimes referred to as the “death tax”), is a tax imposed when a person dies and transfers assets to someone other than a surviving spouse. It is essentially a tax on the right to pass assets to another person upon death.
Who pays it?
If the estate tax is owed, it is due to be paid by the decedent’s estate. The estate tax must be paid if the fair market value of the decedent’s estate is worth more than the lifetime exemption set by congress. For 2025, the lifetime exemption is $13.99 million per person. This means if a person dies in 2025 and his or her estate is worth more than $13.99 million, their estate would be responsible for paying the estate tax.
What was set to happen in 2026?
In 2017, Congress doubled the lifetime exemption from $5 million to $10 million per person (adjusted annually for inflation.) This provision of the 2017 Tax Cuts and Jobs Act was set to expire on January 1, 2026. Thus, prior to the enactment of the One Big Beautiful Bill in July, the lifetime exemption was set to sunset back to $5 million per person. For many people involved in agriculture, this was going to be a significant change that would have required the need to make urgent updates to existing estate plans (or to create estate plans if none were yet in place!)
However, the One Big Beautiful bill changed that, making the lifetime exemption $15 million per person permanent going forward with no set reversion back to prior levels. The lifetime exemption amount will be adjusted annually for inflation.
What should people do in light of this change?
The best advice for anyone concerned about estate tax liability is to work with an attorney and an accountant to ensure there is a plan in place to avoid owing any estate taxes at death. There are a number of potential tools available that can be used in order to achieve this goal–but these steps must be taken prior to a person’s death. For example, a person may be able to offset their estate tax liability by gifting to other people at an amount less than the federal gift tax each year. Another option might be to utilize an irrevocable trust to hold certain property. The advice I always offer to anyone who is even close to having an estate near the lifetime exemption amount is to meet with an attorney and an accountant right away to get a plan in place.
