Background

The federal estate and gift tax exemption is the total amount a person may give to beneficiaries during life or at death without incurring federal estate or gift tax. The 2017 Tax Cuts and Jobs Act (TCJA) more than doubled the federal estate and gift tax exemption from $5.49 million per person in 2017 to $11.18 million in 2018. This exemption, which is indexed annually for inflation, reached a historic high of $13.99 million per person ($27.98 million per married couple) for 2025. However, the increase under the TCJA was temporary and was set to expire at the end of 2025. Without the passage of a new law, the exemption was scheduled to fall to approximately $7 million per person in 2026.

Changes in the “One Big Beautiful Bill Act”

The passage of OBBBA will prevent the scheduled decrease in the federal exemption from occurring. Instead, OBBBA increases the federal estate and gift tax exemption to $15 million per person ($30 million per married couple) in 2026. The exemption will continue to be indexed for inflation annually. Unlike the increase to the exemption under the TCJA, which had a built-in expiration date, the increase to the exemption under OBBBA is “permanent.” This means the increase is not set to expire at any specific time. However, a new Congress and presidential administration could still pass and sign different legislation into law to reduce the exemption in future years

Impact of the Increase

The increase eliminates the time pressure facing individuals and married couples with large estates, who may have felt rushed to take advantage of the high exemption prior to the scheduled decrease by making significant lifetime gifts by the end of 2025. Now, the increase to the exemption under OBBBA gives those with large estates more time to consider and implement their chosen estate tax reduction strategies. However, the increase should not be seen as a reason to forego planning entirely, as political changes could still lead to new legislation that reduces the federal exemption again in the future.

Recent Changes to the Washington State Estate Tax

The federal changes enacted by OBBBA do not affect the Washington state estate tax. However, Washington’s state-level exemption to the Washington state estate tax recently increased also, from $2.193 million per person to $3 million per person, with higher state estate tax rates as well. These changes are discussed in a recent blog post.

If you are interested in discussing ways to take advantage of the increased federal estate and gift tax exemption, please reach out to one of the estate planning attorneys at Montgomery Purdue.