Understanding the Estate Planning Impact of OBBBA

Navigating Through Legislative Changes

Sweeping legislative changes often bring a wave of confusion and concern, particularly when they impact sensitive areas like estate planning. The One Big Beautiful Bill Act (OBBBA), signed into law in July, introduces significant changes. However, understanding these changes now can set the stage for stronger long-term planning, allowing you to adapt and benefit from new provisions while readying for emerging challenges.

Estate and Gift Tax Exemption Increase

Starting January 1, 2026, individuals can pass on $15 million (or $30 million for couples) without facing federal estate tax, with annual adjustments for inflation. This new threshold ends the prior uncertainty around phased reductions, providing a clearer path for estate planning.

Medicaid Reform and Long-Term Care Planning

With $1 trillion in federal Medicaid cuts and new requirements such as work or volunteer obligations, qualifying for long-term care support may become more challenging. Stricter eligibility checks are on the horizon, making it essential to consider private insurance and asset protection strategies to ensure coverage.

Fewer Estates Owing Federal Tax

Only about 0.25% of estates will now owe federal estate tax. However, be mindful of state-level taxes that may still apply, and verify the implications for your estate to avoid any surprises.

Social Security Tax Changes

The OBBBA introduces a temporary new deduction: up to $6,000 ($12,000 for couples over 65) for those under specific income thresholds. This adjustment could increase the number of seniors whose Social Security benefits are untaxed, but remember, this provision expires in 2028 unless renewed.

Medicare Budget Impact

Key Medicare cost-sharing assistance rules are delayed until 2034, potentially coupled with $490 billion in cuts. If PAYGO rules trigger these cuts, it could lead to higher out-of-pocket costs and reductions in providers, so keep an eye on these developments.

No Other Structural Estate Tax Changes

Although the estate and gift tax exemption has increased, the overall structure of estate, gift, and GST taxes remains unchanged. These provisions continue to be governed by the 2017 Tax Cuts and Jobs Act.

Embracing the Complexity with Proactive Planning

While the OBBBA introduces complexity, it also creates a unique opportunity for proactive estate planning. Review your estate documents, long-term care plans, and tax strategies to align with these changes. Consider reaching out to a trusted advisor for guidance tailored to your family's unique situation.