The 2026 Estate Tax Landscape: How the OBBBA Reshapes Trusts and Estate Planning
For years, estate planning professionals and high-net-worth families have prepared for the expected sunset of key provisions in the Tax Cuts and Jobs Act (TCJA)(enacted 1/1/2018), set to expire on December 31, 2025. These changes were anticipated to significantly reduce the federal estate and gift tax exemptions beginning in 2026. However, the tax landscape shifted with the passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. The OBBBA alters the course of estate tax policy and introduces a more permanent framework for estate planning.
Legislative Context
The OBBBA is sweeping tax legislation designed to address various provisions originally enacted under the TCJA. Instead of allowing these provisions to expire, Congress chose to extend and modify them. By removing uncertainty around estate and gift tax exemptions, the OBBBA provides long-awaited clarity for estate planning professionals and families alike.
Key Estate and Gift Tax Changes
One of the most significant updates under the OBBBA is the permanent establishment of new federal estate and gift tax exemption amounts:
- $15 million per individual
- $30 million per married couple, beginning in 2026
This marks a substantial improvement over the previously expected reversion to about $7 million per person, adjusted for inflation. By eliminating the sunset clause, the OBBBA removes the need for rushed transfers before a looming deadline and ensures that these exemptions remain in place long-term, with annual inflation adjustments.
Example: A married couple with a $25 million estate, once facing federal estate tax exposure under the pre-OBBBA sunset scenario, will now be fully exempt under the updated law.
Reality: for the vast majority of Americans, this change will have little effect. On average .0005% of the US population would be exposed to the Federal Estate Tax at the present exemption levels. (on average 145,000 households have an estate in excess of $30.0m in a country with a population of 340.0+)
Additional Federal Tax Provisions
The OBBBA also preserves several personal income tax benefits, extending:
- The current income tax brackets (10% to 37%)
- The enhanced standard deduction
In addition, the law introduces temporary tax relief measures through 2028, including:
- Exclusion of tip income up to $25,000
- Exclusion of overtime pay up to $12,500 (or $25,000 for married couples)
Reality: While increases in the standard deduction are welcomed, with phase out rules in place, these provisions primarily affect working families.
SALT Deduction Relief
Another significant provision addresses the state and local tax (SALT) deduction cap:
- Temporarily increases the cap from $10,000 to $40,000 for households earning under $500,000
- Effective 2025 through 2029
- Reverts to $10,000 starting in 2030
Reality: This is especially impactful for residents of high-tax states like California, where state income and property taxes can quickly exceed the federal deduction limits.
California-Specific Considerations
California remains a no-estate-tax state, meaning residents are only subject to federal estate tax. Combined with the OBBBA’s increased federal exemptions and California’s community property laws, which offer a full step-up in basis upon the death of a spouse, California families are positioned favorably in the current estate planning environment.
Strategic Planning Impacts
By eliminating the TCJA sunset provisions, the OBBBA gives families and advisors room to breathe. The urgency to implement gifting or trust strategies before the end of 2025 has been lifted. This allows for:
- Larger lifetime transfers to trusts, such as to children, grandchildren, or charitable entities
- Longer-term planning horizons without deadline-driven decisions
- Greater focus on multi-generational strategies, including dynasty trusts
With a permanent exemption of $15 million per person, funding long-term trusts becomes more practical and impactful for wealth preservation.
Reality: Couples who created revocable trusts (e.g., living trusts, family trusts) utilizing the Credit Shelter Trust provisions, often referred to as A-B Trusts, should consider amending these trusts to remove the A-B provisions which now require more work, without any tax savings benefit.
Note: Some blended families may still wish to use the A-B provisions to provide partial irrevocability protecting beneficiaries from changes by the surviving step-parent. This is a discussion unique to specific family situations.
What This Means for Existing Trusts
Families with existing irrevocable trusts should revisit their estate plans in light of the new exemption amounts. While many trusts remain effective under the new law, it’s worth evaluating:
- Trust funding strategies
- Tax assumptions
- Distribution provisions
These updates may reveal opportunities to optimize or adjust your current trust structures.
Summary of Key Changes Under the OBBBA
| Provision | OBBBA Change |
| Estate & Gift Tax Exemption | Increased to $15 million per person ($30 million per couple) |
| Sunset Clause | Eliminated; exemptions made permanent |
| Inflation Adjustment | Continues annually |
| Income Tax Rates | Current brackets (10%–37%) maintained |
| SALT Deduction Cap | Temporarily increased to $40,000 (2025–2029) for eligible taxpayers |
What Comes Next?
Although future legislation could modify the current framework, the OBBBA removes the immediate threat of a dramatic rollback in exemption amounts. This stability encourages more thoughtful and values-based planning focused on:
- Family legacy
- Beneficiary protection
- Long-term asset preservation
Advisors now have a firmer foundation from which to recommend strategies without constantly adjusting for expiring laws.
Time to Review Your Estate Plan
With the passage of the OBBBA, the rules of the game have changed. Whether you’re just beginning your estate planning journey or reviewing a long-standing trust, this new law may offer opportunities for optimization.
At DRS Law, we’re here to help you assess how these changes affect your personal situation and ensure your estate plan remains aligned with your family’s goals under current law.
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Sources:
- One Big Beautiful Bill Act, H.R. 1, 119th Congress (2025): Congress.gov
- Tax Foundation Analysis: TaxFoundation.org