How the OBBBA's $15 Million Exemption Affects Your Estate Plan

If the OBBBA's new law had been in place last year, would your estate plan be different?

Starting January 1, 2026, the federal estate tax exemption will rise to $15 million per individual, as mandated by the OBBBA signed into law on July 4, 2025. This change presents an exciting opportunity for many families and individuals to protect their assets while minimizing potential estate tax burdens. Now is the perfect moment to re-examine your estate plan to maximize the benefits of this exemption.

Understanding the $15 Million Exemption

The estate tax applies to the value of your assets at your death. Before the OBBBA, the exemption level was lower, which meant that many estates around the country faced taxes once their total value surpassed $12 million.

With the increase to $15 million, an individual can pass on significant wealth without incurring federal estate tax. This exemption allows for greater flexibility in estate planning, enabling families to preserve wealth for future generations.

Here’s a real-life scenario:

Scenario 1: High-Net-Worth Individual
Say you own a business worth $14 million and have a home valued at $3 million. Under the new OBBBA exemption, your entire estate value could be transferred to your heirs without triggering estate taxes, allowing them to inherit the full value of $17 million.

On the other hand, without proper planning, any portion over the exemption, in this case $2 million, could be subject to the federal estate tax, which can be as high as 40%. Thus, left unplanned, your heirs would be losing up to $800,000 instead of inheriting the entire estate.

The Cost of Estate Planning

Many people wonder about the costs associated with estate planning, especially as it relates to the new exemption limits established by the OBBBA. Here’s a breakdown of what you can expect:

1. DIY Options: If you choose a DIY route, there are free or low-cost resources available online, but these often lack the nuance needed for complex situations. You might end up with a will or trust that misses critical elements, leading to probate complications.

2. Online Platforms: For more robust options, platforms like Inhira offer attorney-reviewed documents that can help you draft a legally valid will or trust for a one-time fee of about $299.

3. Hiring an Attorney: Hiring a lawyer for estate planning can be significantly more expensive. For a comprehensive plan, expect to pay between $1,500 and $3,000 or more, especially if your estate involves multiple properties, high values, or complex family situations.

Your choices should reflect estate values and complexity. The potential savings in probate fees alone warrant investing in thorough estate planning.

Avoiding Probate Fees

Probate is the legal process through which a deceased person’s assets are distributed. It can be lengthy and costly, with fees averaging between 3% and 7% of the estate’s value in many states.

For instance, a $900,000 home in San Jose could incur approximately $27,000 to $63,000 in probate fees.

A well-structured estate plan can help your loved ones avoid these unnecessary expenses and delays. Not only does estate planning save money, but it also ensures your wishes are respected.

Key Steps for Adjusting Your Estate Plan

1. Assess Your Current Situation: Evaluate your assets and their total value.
2. Consider Your Family Dynamics: Who will serve as your executor, beneficiaries, or guardians?
3. Consult a Professional: Engage an estate planning professional to tailor your plan, especially regarding the $15 million exemption.
4. Update Documents: Make necessary changes to your will, trusts, or any powers of attorney.
5. Communicate: Discuss your plan with your family to ensure everyone understands your decisions.

These steps will not only help you take advantage of the new tax exemption but also allow you to create a well-rounded estate plan.

Transitioning Between States

If you decide to move between states, be mindful that the laws governing estate planning can differ significantly. When you move:

• Review your estate plan in your new state to ensure compliance with local laws.
• Make sure your executor and beneficiaries are aware of the changes in legal requirements.
• Familiarize yourself with the probate process specific to your new location, as fees and duration can vary.

Common Questions

Q: Does the OBBBA exempt all estates?
A: No, the $15 million exemption applies to individual estates. Estates worth less than this amount are not subject to federal estate tax.

Q: How are gifts treated under the new exemption?
A: Gifts made during your lifetime are generally considered part of your estate, impacting the amount of the exemption available at death.

Q: What happens if I pass away without a will?
A: Your estate will go through probate, where the court determines asset distribution, often leading to delays and increased costs.

Q: How frequently should I review my estate plan?
A: You should review your estate plan every few years or after any major life event, such as marriage, divorce, or significant financial changes.

Q: Is the estate tax exemption the same for married couples?
A: Married couples can effectively double the exemption by utilizing both individual exemptions, allowing a combined total of $30 million.

By taking these changes into account and adjusting your estate plan accordingly, you ensure that you protect the people who depend on you and minimize any potential tax burdens. Don’t wait until the exemption increases—make your estate planning decisions today to provide long-term benefits to your family.