Thanks to the new One Big Beautiful Bill Act (OBBBA), the federal estate tax exemption will hit new heights next year. And what a long, strange trip it’s been.
The unified estate and gift tax exemption is the amount that each individual can shelter from estate and gift tax on bequests to non-spouse beneficiaries. (The unlimited marital deduction covers transfers between spouses.) Assuming you don’t erode the exemption through lifetime gifts above the annual gift tax exclusion, the entire exemption can be used to shield your taxable estate. This a common approach for many well-to-do individuals.
[This is part of a Special Series on the tax changes made by the One Big Beautiful Bill Act, which was enacted in July 2025. It includes a wide range of changes to individual and corporate taxes, deductions, credits, forms and other topics, that affect tax filing starting this year into the future.]
About 25 years ago, prior to the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), the federal exemption was $1 million. Under EGGTRA, the estate tax exemption was gradually increased to $3.5 million in 2009 as the top estate tax rate dropped from 55% to 45%. EGTRRA also severed the unified estate and gift tax systems, with a lifetime gift tax exemption of $1 million. Then it repealed the federal estate tax outright—but for 2010 only. The tax returned in full force in 2011.
Subsequently, the Tax Relief Act of 2010 (TRA), raised the exemption to $5 million, indexed for inflation, while the top estate tax rate was lowered to 35% and the estate and gift tax systems were reunified. Furthermore, the TRA authorized “portability” of exemptions between spouses so that the estate of a deceased spouse could utilize the unused exemption from the estate of the first spouse to die. The law also restored favorable rules enabling beneficiaries to benefit from a “step-up in basis” on the value of inherited assets.
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The next tax law in line—the American Tax Relief Act (ATRA)—preserved the estate tax exemption of $5 million with inflation indexing. It also extended exemption portability and made this provision permanent. At the same time, ATRA bumped up the top federal estate tax rate from 35% to 40%, where it has remained to this day.
Finally, the TCJA doubled the estate tax exemption from $5 million to $10 million from 2018 through 2025, with inflation indexing. After several significant adjustments, the exemption for decedents dying in 2025 is $13.99 million. Thus, a couple in 2025 can effectively shelter from tax close to $28 million in assets—a hefty sum in virtually anyone’s book. But this higher exemption was scheduled to revert to the pre-TCJA level in 2026.
Not so fast: Not only does the OBBBA boost the TCJA exemption amount by 50%—from $10 million to $15 million, with inflation indexing— it makes the increase permanent. Thus, the maximum estate and gift tax shelter for a couple in 2026 is a staggering $30 million. This is 15 times higher than the exemption amount just a quarter of a century ago!
Similarly, the OBBBA also hikes the generation-skipping transfer (GSST) exemption, which has been rising in lockstep with the estate tax exemption, to $15 million for 2026.
Accordingly, clients should meet with their estate planning professionals to incorporate the latest changes into their estate plans. This may require modifications to important estate planning documents such as wills, trusts, and family limited partnerships (FLPs). In addition, any revisions should be coordinated with strategies based on state laws.
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