The One Big Beautiful Bill Act (“OBBBA”) was signed by President Donald J. Trump on July 4th, 2025, which permanently increases the maximum federal gift and estate tax lifetime exclusion amount (the “Lifetime Exclusion Amount”) that any “US person”1 (as defined below) can use to transfer wealth without triggering federal gift or estate tax. Beginning in 2018, the Tax Cuts and Jobs Act (“TCJA”) increased the Lifetime Exclusion Amount to $10,000,000 (from $5,000,000), which adjusted for inflation, is currently $13,990,000 for year 2025. Prior to the enactment of the OBBBA, the Lifetime Exclusion Amount was scheduled to sunset (expire) as of January 1, 2026, and the amount that could have been sheltered from gift and/or estate tax would have dropped by roughly half. However, with the enactment of the OBBBA, the Lifetime Exclusion Amount will permanently increase to $15,000,000 (or $30,000,000 for married couples) for US persons, beginning on January 1, 2026, and will adjust for inflation each year beginning on January 1, 2027. This update has significant implications for high-net- worth individuals and families, especially those looking to transfer wealth efficiently and reduce long-term estate tax exposure.
Important Implications Regarding the Increase of the Lifetime Exclusion Amount
If a “US person” (as defined below) has already used most or all of his/her Lifetime Exclusion Amount by 2025 (i.e., $13,990,000) by making taxable gifts, the increased Lifetime Exclusion Amount under OBBBA will provide an additional unused exclusion amount starting in 2026. This expanded exclusion can be used to further shelter gifts from federal gift tax and to reduce the exposure of an otherwise taxable estate for federal estate tax purposes. Therefore, this recent change brought by the OBBBA eliminates the previous uncertainty around the 2026 sunset and allows individuals and families to build long- term estate plans around a higher stable exemption level2. With the increase of the Lifetime Exclusion Amount, affluent individuals and families have a longer window to make strategic transfers without the pressure of a near-term deadline, opening the door for more measured and tax efficient gift and estate planning strategies.
This opens up powerful planning options, such as funding irrevocable trusts with larger amounts and/or making larger gifts to children (or other beneficiaries) without triggering gift tax or exposing their estates to federal estate taxes, which could be subject to a tax rate of up to 40% on amounts above the Lifetime Exclusion Amount.
Continued Need for Proactive Planning
The increase in the Lifetime Exclusion Amount may be considered “permanent” in the sense that no automatic sunset or expiration date has been considered. However, the increased Lifetime Exclusion Amount remains politically sensitive, since future administrations or Congress could still opt to revisit and reduce the threshold in the future. Therefore, it is recommended that potentially exposed individuals and families revisit their estate plan with current tax advisors to ensure they are taking full advantage of the extended and increased Lifetime Exclusion Amount to secure significant long-term benefits for wealth preservation and family legacy.
Not least of all, Puerto Rico residents who may not qualify as “US persons” for federal estate tax purposes should still consult with an estate planning professional to evaluate alternative strategies in light of potential federal estate tax exposure. Proactive and tailored planning is essential to effectively minimize such exposure and preserve family wealth.
1 Generally, for federal estate tax purposes, a decedent is considered a “US person” if such individual was a citizen of the United States by reason of his/her birth or naturalization in continental United States (i.e., the 50 States and Washington D.C.) or if such individual, as a US citizen, passed away while being domiciled in continental United States (i.e., the 50 States and Washington D.C.). Generally, a US citizen domiciled in a possession of the United States (i.e., Puerto Rico) who acquired his/her US citizenship solely by reason of (i) being a citizen of such possession of the United States or birth or residence within such possession of the United States, shall be generally considered a “nonresident noncitizen of the United States” for federal estate tax purposes. These details should be consulted with an estate tax planning professional on a case-by-case basis.2 State-level estate taxes (where applicable) are not affected by the OBBBA and must still be considered as part of the overall estate plan.