Welcome to the seventh installment in TRP Sumner PLLC’s series of articles exploring key components of the One Big Beautiful Bill (OBBBA), enacted in 2025. Our goal is to provide clear, actionable insights into the provisions of this comprehensive tax legislation that impact our clients. In this article, we focus on the permanent increase in the estate and gift tax exemption to $15 million per person, offering strategies for small business owners and high-net-worth individuals to leverage this change for effective wealth transfer planning.

Executive Summary

Estate and Gift Tax Exemption Increase: Planning for Wealth Transfer

The OBBB permanently increases the federal estate and gift tax exemption to $15 million per person, effective for 2026 and beyond. This significant change expands opportunities for wealth transfer and provides greater flexibility to pass assets to heirs or beneficiaries with reduced tax consequences.

Overview of the Estate and Gift Tax Exemption

The federal estate and gift tax applies to wealth transfers during life (via gifts) or at death (through estates). The exemption shields a portion of these transfers from tax, with any excess subject to a federal rate of up to 40%.

Prior to the OBBB, the exemption was $13.61 million per person in 2024 (adjusted annually for inflation), and it was scheduled to drop to roughly $7 million in 2026 when provisions from the Tax Cuts and Jobs Act of 2017 expired.

The OBBB sets the unified estate and gift tax exemption at $15 million per person, indexed annually for inflation. For married couples, this translates to a combined exemption of $30 million. Because it is unified, the exemption applies to both lifetime gifts and transfers at death.

Key Features of the Exemption Increase

• Permanent $15 Million Exemption: Each individual may transfer up to $15 million tax-free during life or at death.
• Inflation Adjustments: The exemption will increase annually with inflation.
• Unified Exemption: Gifts made during life reduce the remaining exemption available at death.
• Portability: Married couples can transfer unused exemptions between spouses, allowing up to $30 million with proper elections.

Benefits for Small Business Owners and High-Net-Worth Individuals

• Larger Tax-Free Transfers: Substantial assets such as businesses, real estate, or investments can be passed without estate or gift tax liability.
• Simplified Planning: A permanent exemption reduces uncertainty and allows for confident long-term planning.
• Succession Planning Support: Business owners can transfer ownership with reduced tax impact, smoothing generational transitions.
• Enhanced Gifting Opportunities: High-net-worth individuals can use the exemption for lifetime gifts that also remove future appreciation from their estate.

Planning Strategies

For Small Business Owners

1. Transfer Business Interests: Use the exemption to pass ownership to family or successors, removing future appreciation from your estate.
2. Leverage Valuation Discounts: Discounts for lack of marketability or minority interests can reduce the taxable value of transferred business interests.
3. Create a Family Limited Partnership (FLP): Transfer assets into an FLP and gift limited partnership interests, preserving control while lowering taxable value.
4. Fund Trusts for Succession: Vehicles such as grantor retained annuity trusts (GRATs) can transfer interests while minimizing tax consequences.

For High-Net-Worth Individuals

1. Maximize Lifetime Gifting: Transfer appreciating assets during life to reduce future estate tax.
2. Use Annual Exclusion Gifts: In addition to the $15 million exemption, you can gift $18,000 per recipient in 2025 without reducing your lifetime exemption.
3. Establish Dynasty Trusts: Use the exemption to fund trusts benefiting multiple generations, shielding assets from future estate taxes.
4. Coordinate Portability Elections: Married couples should ensure IRS Form 706 is filed at the first spouse’s death to preserve unused exemption amounts.

Key Considerations

• Gift Tax Reporting: Lifetime gifts above the annual exclusion require filing IRS Form 709.
• State Taxes: Some states impose estate or inheritance taxes with much lower exemptions.
• Legislative Risk: While the $15 million exemption is permanent, future laws could revise it. Regular plan reviews are important.
• Professional Guidance: Strategies such as trusts, valuation discounts, and succession planning should be coordinated with tax and estate professionals.

Planning Opportunities

• Update Your Estate Plan: Reflect the $15 million exemption in your planning documents.
• Review Business Valuations: Obtain appraisals and explore discount opportunities.
• Coordinate With Other OBBB Provisions: Combine the exemption with other tax benefits, such as the QBI deduction or bonus depreciation.
• Act Early: Making lifetime gifts now ensures future appreciation is excluded from your estate.

Contact TRP Sumner

At TRP Sumner PLLC, we’re here to help small business owners and high-net-worth individuals navigate the increased estate and gift tax exemption. Whether you’re planning business succession or structuring wealth transfers, our team can guide you through strategies that fit your goals.