Key estate and gift tax changes under the "One Big Beautiful Bill Act"
The "One Big Beautiful Bill Act" (OBBBA), signed into law by President Trump on July 4, 2025, makes significant changes to US estate and gift tax laws, especially for high-net-worth individuals.
These changes are designed to provide more flexibility in estate planning and allow for more substantial wealth transfers without incurring gift or estate taxes.
Permanent increase in exemption amounts
The bill permanently increases the estate and gift tax lifetime exclusion amounts, effective January 1, 2026.
New exemption amounts:
- For individuals: The estate and gift tax exemption will rise to $15 million, up from $13.99 million for 2025.
- For married couples filing jointly: The combined exemption increases to $30 million, up from $27.98 million in 2025.
This change provides individuals and families with larger estates greater flexibility in planning and passing on wealth without incurring estate taxes.
Inflation adjustments
The new $15 million exemption will be indexed for inflation starting in 2027, using calendar year 2025 as the base year for future inflation adjustments.
Prevention of the sunset provision
The OBBBA has prevented the automatic decrease of the exemption amount that was set to occur after December 31, 2025, due to a sunset provision from the 2017 Tax Cuts and Jobs Act.
Had this bill not been passed, the exemption would have reverted back to $5 million per person. This provision secures higher exemption amounts permanently.
What this means for estate planning:
- No deadline: The December 31, 2025, "deadline" for estate and gift tax planning strategies is now eliminated, providing more time for estate planning.
- For individuals or couples with estates exceeding the new exemptions: The increased exemptions provide greater planning flexibility, though high-net-worth individuals still need to evaluate their strategies to reduce estate taxes in the long term.
Gift tax changes: A powerful estate planning tool
Alongside the estate tax changes, the annual gift tax exclusion for 2025 has increased to $19,000 per donee, up from $18,000 in 2024.
This means individuals can now give more to each recipient annually without using up any of their lifetime estate and gift tax exemption.
For married couples filing jointly, the exclusion is now $38,000 per recipient.
How this benefits estate planning:
- Gradual transfer of wealth: Individuals can now transfer more wealth each year to their children or other beneficiaries without reducing their lifetime estate tax exemption, helping to avoid a large tax bill down the line.
- Effective tool for parents: The increased exclusion allows parents to transfer more assets over time, reducing their taxable estate before they pass away.
Foreign gift and inheritance tax considerations
The OBBBA keeps many of the current provisions related to foreign gift and estate taxes, which is particularly important for US expatriates and foreign nationals with US-connected estates.
What was removed from the final version of the bill
❌ Enhanced foreign gift reporting: The proposed stricter foreign gift reporting requirements were removed from the final law, keeping current rules in place.
❌ Lower Form 3520 thresholds: The thresholds for filing Form 3520, which deals with foreign gifts and inheritances, remain unchanged.
❌ Section 899 “unfair foreign taxes” provision: The bill originally included a provision that would have taxed gifts or inheritances from countries that impose "unfair" foreign taxes at a higher rate. This provision was removed from the final bill.
What remains in the bill
✔️ 1% remittance tax: The bill includes a 1% tax on remittances to recipients outside the United States. This tax is lower than the original 3.5% proposed under the House version of the bill, but it remains a noteworthy consideration for expatriates sending money abroad.
Affected countries
The Section 899 provision, which would have taxed gifts or inheritances from countries imposing unfair foreign taxes at a higher rate, was dropped.
However, the following countries were initially listed under this provision:
- Australia
- Austria
- Belgium
- Bulgaria
- Canada
- Croatia
- Cyprus
- Czech Republic
- Denmark
- Finland
- France
- Germany
- Greece
- Guinea
- Hungary
- Ireland
- Italy
- Liechtenstein
- Luxembourg
- Macedonia
- Nepal
- Netherlands
- New Zealand
- Poland
- Portugal
- Romania
- Sierra Leone
- Slovenia
- South Korea
- Spain
- Sweden
- Thailand
- Tunisia
- Turkey
- Uganda
- United Kingdom
- Zimbabwe
These countries were initially deemed to impose unfair foreign taxes, which could have triggered the additional tax burden for gifts or inheritances received from these jurisdictions.
The removal of this provision means that these countries will no longer face such penalties under US estate and gift tax law.
Implications for US expatriates
❗ Foreign gift and inheritance tax planning: For US expatriates, it’s crucial to continue following existing foreign gift and inheritance tax reporting requirements, as these were not impacted by the OBBBA.
❗ Form 3520 compliance: Ensure compliance with Form 3520 when receiving gifts or inheritances from foreign sources above the applicable thresholds.
Practical implications and estate planning strategies
Impact for high-net-worth individuals
The permanent increase in the estate and gift tax exemption allows high-net-worth individuals and married couples with estates larger than the new exemptions to continue using gifting strategies. This can help reduce their taxable estates over time.
Annual gifting: The increased gift tax exclusion provides a valuable tool for individuals to reduce their estates without triggering estate tax liability. This can be particularly helpful for those planning for the future of their children or grandchildren.
Planning for married couples
Strategic gifting: Married couples can now use the increased exemption amounts in tandem with annual gifting to pass down wealth efficiently.
By gifting up to $38,000 per recipient annually, couples can gradually transfer wealth without triggering gift taxes or reducing their lifetime exemption.
Estate tax planning considerations: For couples with estates larger than $30 million, it is advisable to consider using trusts, charitable donations, and life insurance strategies to optimize their tax positions.
Key takeaways
- The permanent increase in the estate and gift tax exemption to $15 million per individual provides more flexibility for estate planning.
- Annual gift tax exclusion has increased, allowing for more efficient wealth transfer.
- US expatriates and those with foreign connections should remain informed on foreign gift and inheritance tax reporting requirements.
- The 1% remittance tax included in the bill is a new development, and expatriates should be aware of this when sending funds abroad.
For US expatriates, understanding the intersection of US tax law and international estate planning will be crucial in the years ahead.
It is always advisable to consult with an experienced tax professional to stay ahead of these complex rules and develop a strategy that aligns with both US and foreign tax laws.
