One Big Beautiful Bill Act: Estate Planning Insights
Understanding the Impact of the One Big Beautiful Bill Act on Estate Planning
The recent enactment of the One Big Beautiful Bill Act (OBBBA) has undoubtedly stirred questions and concerns, especially regarding its implications for estate planning. This sweeping legislation, signed into law in July, brings about considerable changes. By understanding these changes now, individuals and families can leverage this knowledge for stronger long-term planning, adapting strategies to benefit from new provisions and navigate upcoming challenges.
Estate and Gift Tax Exemption Increase
One of the most noteworthy changes under the OBBBA is the increase in the estate and gift tax exemption. Starting January 1, 2026, individuals can pass on up to $15 million without incurring federal estate tax, doubling to $30 million for married couples, with annual adjustments for inflation. This measure ends the uncertainty about phased reductions, opening new horizons for estate planning.
Medicaid Reform and Long-Term Care Planning
With the implementation of significant Medicaid reforms, including $1 trillion in federal cuts and new work or volunteer requirements, qualifying for long-term care support could become more challenging. Stricter eligibility checks make it essential for individuals to explore alternate strategies such as private insurance and asset protection to secure future care needs.
Fewer Estates Owing Federal Tax
The modifications ushered in by the OBBBA mean that only approximately 0.25% of estates will now owe federal estate tax. While this news may seem positive, it’s crucial to remain vigilant about potential state-level taxes that could still apply.
Social Security Tax Changes
A temporary new provision under the OBBBA allows for a deduction of up to $6,000 for individuals or $12,000 for couples over 65, subject to meeting specific income thresholds. This change might relieve some seniors from paying taxes on their Social Security benefits. However, this provision will expire in 2028 unless it's renewed, making timely financial reviews advantageous.
Medicare Budget Impact
The OBBBA delays the implementation of crucial Medicare cost-sharing assistance rules until 2034, which, compounded by potential $490 billion cuts, might lead to increased out-of-pocket expenses and provider reductions if PAYGO rules are triggered. Planning for these contingencies becomes essential to safeguard future healthcare needs.
No Other Structural Estate Tax Changes
Aside from the raised exemption, the fundamental structure of estate, gift, and GST taxes remains unchanged, as stipulated by the 2017 Tax Cuts and Jobs Act. This consistency allows for strategic adjustments without overhauling existing plans.
While the complexities of the OBBBA might seem daunting, they also offer a valuable window for proactive, strategic estate planning. It's advisable to reassess estate documents, long-term care plans, and tax strategies. Consulting a trusted advisor can provide personalized guidance tailored to the unique dynamics of your family and financial situation.