Sweeping legislative changes often stir confusion, especially when they touch on crucial areas like estate planning. The One Big Beautiful Bill Act (OBBBA), signed into law in July, brings significant updates that demand our attention. While these changes may initially seem daunting, understanding them can strengthen your long-term planning strategies.
Understanding Key Changes
Estate and Gift Tax Exemption Increase:
Starting January 1, 2026, individuals can pass on $15 million ($30 million for couples) without facing federal estate tax, with adjustments for inflation. This change alleviates previous uncertainties regarding phased reductions.
Medicaid Reform and Long-Term Care Planning:
With $1 trillion in federal Medicaid cuts and stricter eligibility checks, qualifying for long-term care support could become more challenging. It's wise to explore private insurance and asset protection strategies.
Fewer Estates Owing Federal Tax:
Only about 0.25% of estates will now owe federal estate tax. However, watch out for applicable state-level taxes that might still apply.
Social Security Tax Changes:
There's a new deduction available — up to $6,000 ($12,000 for couples over 65) for those within certain income thresholds. This could temporarily increase the number of seniors with untaxed Social Security benefits until its potential expiration in 2028.
Medicare Budget Impact:
The delay of key Medicare cost-sharing assistance rules until 2034, coupled with potential $490 billion cuts, could lead to higher out-of-pocket costs for many.
No Other Structural Estate Tax Changes:
Aside from the elevated exemption, the structure of estate, gift, and GST taxes remains unchanged, preserving provisions from the 2017 Tax Cuts and Jobs Act.
Strategic Planning Opportunities
The OBBBA presents not only complexities but also a chance for proactive estate planning. It's a good time to review your estate documents, long-term care plans, and tax strategies. Engaging with a trusted advisor for personalized guidance can help tailor these adjustments to your family's specific needs and financial situation.