The House of Representatives recently passed the “One Big Beautiful Bill Act” (OBBBA), a sweeping legislative package with significant changes. The OBBBA would also extend many provisions of the 2017 “Tax Cuts and Jobs Act,” including the federal estate and gift tax laws. Here’s an overview of the proposed reforms to the estate tax and the bill’s prospects in the Senate.
Proposed Estate Tax Changes
Under current law, the federal estate and gift tax exemption is set at $13.99 million per individual ($27.98 million for married couples). These exemptions are scheduled to revert to approximately $7 million per individual in 2026 if no legislative action is taken.
The OBBBA aims to make the current exemption levels permanent, adjusted annually for inflation. This move would provide long-term certainty for estate planning, allowing individuals and families to transfer more wealth without incurring federal estate or gift taxes.
Senate Outlook: Uncertain Path Ahead
Despite its passage in the House, the OBBBA faces a challenging road in the Senate. While Republicans hold a slim majority, internal divisions could impede the bill’s progress. Senator Ron Johnson (R-WI) and a group of fiscally conservative senators have expressed concerns about the bill’s projected $3.8 trillion increase to the federal deficit over the next decade. Johnson has indicated that he and his allies are prepared to halt the bill’s advancement unless significant spending cuts are incorporated.
Moreover, the Senate’s reconciliation process, which allows for expedited consideration of budget-related legislation, imposes strict rules. The “Byrd Rule” prohibits provisions that do not have a direct budgetary impact or that increase the federal deficit beyond a ten-year window. This means that even if the estate tax exemption extension is included in a reconciliation bill, it could be subject to sunset provisions or other limitations.
However, it is essential to note that there is little to no disagreement regarding the extension of the federal estate and gift tax exemption levels. It would be a surprise to see any changes to this provision of the OBBBA.
Stay Tuned
As the legislation moves to the Senate, the final shape of estate tax reform is still uncertain. We’ll continue to monitor the debate and provide updates as developments unfold. Whether you’re planning now or waiting to see how the law changes, staying informed is key.