Understanding Estate Planning under to OBBBA Act

Navigating New Estate Planning Realities

Major legislative changes, such as the One Big Beautiful Bill Act (OBBBA), can understandably cause both concern and confusion, particularly in complex areas like estate planning. Having come into law this past July, OBBBA has introduced significant shifts that are essential to understand for well-informed decision-making. However, there is reassurance in knowing that these changes offer opportunities to refine strategies, allowing individuals to adapt and even benefit from the new legal landscape.

Estate and Gift Tax Exemption Increase

Under the OBBBA, starting January 1, 2026, individuals will be able to pass on up to $15 million without incurring federal estate taxes, with couples benefitting from a $30 million exemption. This adjustment not only alleviates past uncertainties related to phased reductions but also presents an exciting opportunity for estate planning flexibility with annual inflation tweaks in consideration.

Medicaid Reform and Long-Term Care Planning

A pivotal change involves $1 trillion in federal Medicaid cuts, alongside the introduction of work or volunteer prerequisites and stricter eligibility checks, making qualifying for long-term care support more challenging. This underscores the importance of exploring private insurance and asset protection strategies as necessary measures to safeguard against these shifts in qualification dynamics.

Fewer Estates Facing Federal Tax

With only about 0.25% of estates likely to owe federal estate tax now, there is a marked reduction in federal tax liability for most estates. However, it remains crucial to remain vigilant against state-level taxes that could still apply, affecting overall estate administration plans.

Social Security Tax Changes

There's a new temporary deduction of up to $6,000 for individuals—and $12,000 for couples over age 65—under specific income thresholds. Scheduled to expire in 2028 unless extended, this change could lead to an increased proportion of seniors benefiting from untaxed Social Security benefits, presenting short-term financial relief.

Medicare Budget Adjustments

The Act introduces delays to Medicare cost-sharing assistance rules until 2034, with potential $490 billion cuts looming, particularly if PAYGO rules trigger these reductions. This points towards potential increases in out-of-pocket expenditures and could impact service delivery, meriting careful consideration within personal financial and healthcare planning frameworks.

No Structural Changes Beyond Exemption

Aside from the increased exemption, the fundamental framework of estate, gift, and generation-skipping transfer (GST) taxes remains intact. Provision from the 2017 Tax Cuts and Jobs Act are still in place, providing continuity albeit amidst new fiscal adjustments. While the complexity introduced by the OBBBA may seem daunting, it also opens avenues for strategically enhancing your estate planning efforts. Take this as a call to action to comprehensively review estate documents, reassess long-term care plans, and fine-tune tax strategies aligning with these legislative updates. For personalized advice, reach out to a trusted advisor equipped to tailor to your family and financial nuances.