Rising Above the Sunset: The Big Beautiful Bill’s Proposed Changes to Federal Estate Tax
If your estate is less than $13.99 million dollars in assets, and you pass away, then under the current federal tax laws, the beneficiaries owe no federal estate tax. This limit of $13.99 million is called the “federal estate tax exemption.” The federal estate tax exemption is often called an “exemption,” but it is more accurately identified as the unified credit, which is a tax credit rather than an exemption. When you make gifts, the law calculates a hypothetical tax on those transfers, but the unified credit offsets this tax. As a result, you can give away assets up to a certain total value during your lifetime or at death without actually owing gift or estate tax on those amounts. The federal estate tax exemption may be doubled by a couple, such that each spouse has up to $13.99 million to gift to beneficiaries, totaling $27.98 million. Any gifts at death to beneficiaries that exceed the federal exemption limit is subject to a hefty estate tax.
While most people do not amass assets near the current federal exemption limit, the current law is set to sunset, and changes to the federal estate tax exemption and “death taxes,” the colloquial term, are possibly coming. The current law, which sets the federal exemption as it is today, was enacted as part of the Tax Cuts and Jobs Act of 2017. This law is set to sunset on December 31, 2025. The federal exemption for individuals is set to revert to $7 million per person, $14 million per couple if the current law isn’t extended or otherwise changed.
However, there is a bill currently moving through Congress that extends the federal estate tax exemption. This budget reconciliation bill, called the “Big Beautiful Bill,”, contemplates an extension and expansion of the current federal exemption. The bill, which is currently in the Senate’s hands, has the federal exemption increasing to $15 million for gifts made after 2025.
The current and proposed federal exemption is historically high. If you are a high-net-worth individual, particularly if you have a closely held business or other large asset that comprises the bulk of your net worth, you may want to consider your estate planning and strategic gifting vehicles while we all wait to see what happens with the Big Beautiful Bill. Regardless of the extension and expansion of the federal exemption, proper and thoughtful planning can avoid unnecessary taxes on your estate after you die.
As of the date of this article, each spouse has a lifetime exemption amount of $13.99 million. Essentially, that gives a married couple a combined exemption up to $27.98 million, provided the right mechanisms are in place or completed to take advantage of the combined exemption amount. In most instances, the documents we suggest are the following:
- Revocable trust
- Will
- Trust certificate
- Marital property agreement
- Powers of attorney
We also recommend any additional ancillary documents necessary to avoid probate.
In instances where the expected combined estate is greater than $27.98 million, or $14 million in 2026, we may also suggest an irrevocable trust. There are many types of irrevocable trusts, for example:
- Irrevocable Life Insurance Trust (ILIT)
- Intentionally Defective Grantor Trust (IDGT)
- Spousal Lifetime Access Trusts (SLATs)
- Charitable Remainder Trusts (CRTs)
- Irrevocable Life Insurance Trusts (ILIT)
The ideal irrevocable trust provides maximum benefits based on consideration of the types of assets you own, where a majority of your wealth is concentrated in your estate, and what your goals are. The experts in tax and estate planning at Axley are available to guide you through the tax law changes and advise on the best possible structure for your estate plan in light of these changes. Reach out today!
