In 2017, the Tax Cuts and Jobs Act (TCJA) significantly raised the estate tax exemption. However, the increase was made temporary, leaving families uncertain as to how to structure their estate plan. This uncertainty has now been resolved with a new, higher exemption that is permanent.
Estate Planning Under the TCJA
The TCJA increased the Unified Credit (also known as the estate tax exemption), which is the amount that can be passed to heirs free of estate or gift tax, to $10.5 million in 2017. Since then, inflation adjustments brought that number to its 2025 level – $13.99 million. However, the higher credit was due to “sunset” effective December 31, 2025, at which point it was to be cut in half, back to its pre-2017 levels.
Over the last few years, families and estate planners have spent significant time figuring out how best to utilize the increased credit before the “sunset.” The U.S. Department of the Treasury even established regulations to address what would happen to those who used the increased credit, but died later, when the credit was reduced.
The further we moved into 2025 without a certain resolution, the more estate planners prepared for a potential chaotic 4th Quarter effort to use the expanded credit.
The “Big Beautiful Bill’s” Changes to the Estate Tax
On July 4, 2025, President Trump signed the government spending bill known as the “Big Beautiful Bill,” which not only made permanent the higher Unified Credit amount but increased it even further, to $15 million, with future inflation adjustments to follow.
The credit remains portable between spouses, meaning that if the first to die spouse doesn’t use their full credit, the estate can file a streamlined estate tax return, transferring any remaining credit to the surviving spouse. As a result, under the new law, a married couple can collectively transfer $30 million in assets without paying a cent of federal estate tax.
With no sunset of the increased credit amount contained in the new law, families no longer have to worry about significant changes in the future.
Furthermore, as less than 1% of Americans have more than $15 million in assets, federal estate tax planning is no longer a consideration for most people when preparing their estate plans. So, what planning is needed now?
Legacy and Succession Planning
Minimizing tax concerns allows a renewed focus on estate planning beyond the numbers. As an example: Who will most benefit from your assets? What should you do with your family business? Which beneficiaries have special needs that would best be served by a Trust?
New York State Estate Tax Planning
While the Federal limit has increased, the New York State Estate Tax exemption is lower, at $7.16 million. The tax consequences of failing to plan in New York are particularly significant if an estate exceeds 105% of that amount (known as the “estate tax cliff”) because of the high tax rate as well as the fact that once an estate goes over the cliff, every dollar of the estate is taxed. Additionally, there is no portability in New York, so the exemption is “use it or lose it” for each spouse. Accordingly, even if an estate is not taxable at the federal level, you may still need to plan properly to minimize taxes in New York.
Capital Gains Tax Planning
In many situations, estate tax planning requires transferring assets during your lifetime and sacrificing what is known as a “stepped-up basis.” Generally, your tax basis in an asset is what you paid for the asset, with various adjustments. When you sell it, you pay taxes on the appreciation (the sales price less your basis).
A stepped-up basis applies to assets you own when you die. Your heirs inherit your assets with a tax basis equal to their stepped-up value as of the date of your death. As a result, when your heirs sell the assets in the future, they will NOT pay capital gains tax on the appreciation of the asset during your lifetime. Instead, they will only pay tax on the appreciation in value from your date of death to the date of the sale.
Many outdated estate plans put in place when the federal credit was lower are “capital gains bombs” because the transfers were made before death. However, there are several ways to mitigate these issues, including by revising trusts and using substitution powers built into trusts to change which assets are held in trusts.
If you don’t have a comprehensive estate plan or haven’t reviewed yours with an attorney in the last few years, contact us for a consultation. Proper estate planning can save your family time, money and stress.