OBBBA Deep Dive - Part 4: Estate Planning

The One Big Beautiful Bill Act (OBBBA) has reshaped major parts of the tax code, lowering taxes for many households and significantly increasing the federal estate tax exemption. While this has reduced estate tax exposure for most families, it has also quietly shifted the center of gravity in estate planning.

For many households today, estate taxes are no longer the primary concern — income taxes are. And that reality is changing how sophisticated estate plans are designed, reviewed, and updated.

That’s why Part 4 of the OBBBA Deep Dive series focuses on modern estate planning strategies, including using powers of appointment to achieve a new income tax basis and structuring generational trusts with flexibility in mind — strategies that matter regardless of whether tax laws change again in 2026.

Change can feel overwhelming, but you don’t have to navigate it alone. I’m monitoring these rules closely and helping clients adapt their estate plans to reflect today’s tax environment — not yesterday’s assumptions.

Primary Estate Tax Change Under the OBBA: 

The primary estate tax change under the One Big Beautiful Bill Act (OBBBA) is the permanent increase of the federal estate and gift tax exemption to $15 million per individual (or $30 million per married couple) beginning January 1, 2026. 

Key details of the changes include:

• Increased Exemption Amount: The federal estate, gift, and generation-skipping transfer (GST) tax exemption, which was $13.99 million per person in 2025, is increased to $15 million per person starting in 2026. This amount will be adjusted annually for inflation in the years following 2026.
• Permanence: Unlike the temporary increase under the 2017 Tax Cuts and Jobs Act (TCJA), which was scheduled to sunset and be cut in half at the end of 2025, the OBBBA makes the higher exemption amount permanent, providing more stability for long-term estate planning.
• Tax Rate and Basis: The top marginal estate and gift tax rate remains at 40%. The "step-up in basis" rule is also preserved, allowing heirs to inherit assets valued at their fair market value at the date of death without realizing capital gains tax on prior appreciation.
• Portability: The OBBBA retains the portability election, which allows a surviving spouse to use any unused portion of a deceased spouse's federal exemption, effectively doubling the exemption for married couples with proper planning. 

A Shift in Estate Planning Priorities

With today’s historically high exemption, fewer families are paying federal estate tax. As a result, many estate plans drafted years ago were built to solve a problem that no longer exists for most households — while unintentionally creating a new one.

When assets pass to heirs, estate tax may not be owed, but capital gains tax often is. Whether beneficiaries inherit assets with a stepped-up basis or a carryover basis can make a meaningful difference in after-tax outcomes.

“An estate plan can be perfectly executed — and still be tax-inefficient.”

In this environment, good estate planning is less about keeping assets out of the estate at all costs and more about understanding when inclusion may actually be beneficial.

Powers of Appointment: Flexibility Creates Opportunity

One of the most effective — and often overlooked — tools in this new planning landscape is the general power of appointment.

When used thoughtfully, a general power of appointment can allow assets held in trust to be intentionally included in a beneficiary’s estate, not to create estate tax, but to secure a step-up in income tax basis. This represents a meaningful departure from older strategies that prioritized exclusion above all else.

Rather than locking families into rigid outcomes, powers of appointment introduce flexibility. They allow estate plans to respond to actual tax exposure, family circumstances, and changing laws — instead of relying on assumptions made decades earlier.

“The most valuable feature of an estate plan today isn’t permanence — it’s adaptability.”

Rethinking Generational Trusts

Generational trusts remain powerful tools for long-term planning, creditor protection, and legacy building. But in a high-exemption world, rigidity can become a liability.

Many older trusts were designed to keep assets permanently outside the estate system. While effective for estate tax minimization, these structures can trap low-basis assets and increase income taxes for heirs over time.

Modern estate planning increasingly favors flexible generational trusts — structures that preserve protection and intent while allowing room to adjust. When designed carefully, these trusts can accommodate cost basis planning, respond to evolving tax laws, and better serve future generations.

Estate planning is no longer about freezing decisions in time. It’s about creating frameworks that can evolve as circumstances change.

Why This Still Matters — Even Without Estate Taxes

A common misconception is that estate planning loses relevance when estate taxes aren’t a concern. In reality, that’s often when planning quality matters most. Income tax efficiency, beneficiary outcomes, family dynamics, and long-term flexibility all remain deeply connected to how an estate plan is structured.

“The goal isn’t just to pass wealth on — it’s to pass it on wisely.”

State Estate Tax

Under the One Big Beautiful Bill Act (OBBBA), changes to the federal estate tax exemption do not automatically flow through to the states. As a result, many states continue to impose their own estate or inheritance taxes with much lower exemption amounts, meaning families can owe state estate tax even when no federal estate tax is due—a critical planning gap that OBBBA does not eliminate.

The Bottom Line

OBBBA didn’t eliminate the need for estate planning — it changed the lens through which good planning is done.

In today’s environment, strategies like powers of appointment, cost basis management, and flexible generational trusts are becoming central to effective estate plans. The most successful plans are not static documents, but living structures designed to adapt over time.

If you’d like to revisit your estate plan through this updated lens, or explore whether your current structure still aligns with today’s tax realities and your long-term goals, I’m here to help.