Natalie McHugh

CPA | CK Principal

The “One Big Beautiful Bill” signed into law over the July 4^th weekend introduces major updates to estate and gift tax rules that could significantly affect your estate planning strategy. Prior to the Act, the gift and estate tax exemptions were slated to scale back to about $7 million per taxpayer in 2026.

The following are the highlights involving the estate and gift tax:

Increased Estate and Gift Tax Exemption (Effective January 1, 2026)

Beginning January 1, 2026, the federal estate and gift tax exemption will increase to:

• $15 million per individual
• $30 million per married couple 

This increased from $13.99 million per individual exemption available in 2025.  This new amount will also be adjusted annually for inflation after 2026. This exemption is made “permanent” by the Act, but as history reminds us, a future change in control of the government means nothing is ever truly permanent. 

Annual Gift Exclusion

The annual gift exclusion remains at $19,000 per recipient for 2025.  This means you can give up to $19,000 per individual without reducing your lifetime estate tax exemption. The annual exclusion will continue to adjust for inflation each year. 

Estate Tax Rate and Portability Rules

• The top federal estate tax rate remains at 40%. It is a flat tax for estates above the exclusion amount.
• Portability rules are still in effect under OBBBA. This means a surviving spouse can use any unused exemption from their deceased spouse’s exemption, as long as an estate tax return is filed for the deceased spouse. 

This portability feature remains a powerful estate planning tool for married couples aiming to preserve wealth and minimize estate taxes.

What This Means for Estate Planning

Prior to OBBBA, the federal exemption was expected to drop to about $7 million per taxpayer in 2026. This pending “sunset” led many individuals to accelerate estate planning strategies before the deadline.

With the new, higher $15 million exemption, that state of urgency has eased. But strategic estate planning is still essential, especially for individuals or couples with estates near or above the new thresholds. 

• If your estate exceeds $15 million per individual ($30 million per couple), you should still work with your advisors to optimize your plan and minimize taxes.
• If you previously rushed to create or amend trusts due to the expected 2026 reduction, now is a good time to review your estate plan in light of these changes.

Important Note for Illinois Residents

For taxpayers residing in Illinois, the federal exemption is not the only number that matters. Illinois imposes its own estate tax on estates over $4 million. 

• A married couple can defer Illinois estate tax until the death of the second spouse by utilizing an Illinois QTIP (Qualified Terminable Interest Property) election. 
• To take advantage of this election, your trust documents must be properly drafted to allow for it.

We recommend speaking to your advisors to make sure your trusts are structured to maximize federal and state tax benefits.

Next Steps: Review Your Estate Plan Now

Even though OBBBA extends and expands the federal exemptions, estate planning remain crucial for individuals and families of all wealth levels. Laws can change, so the best way to protect your legacy is to keep your estate plan current, flexible and aligned with your goals.

If you have questions about the OBBBA affects your estate, gift or trust planning, contact the team at Cray Kaiser to help you evaluate your options and ensure your plan is up to dat