The Impact of the One Big Beautiful Bill Act on Your Estate Plan
Upon the expiration of the Tax Cuts and Jobs Act of 2017 on December 31, 2025, the Federal Lifetime Gift, Estate, and Generation-Skipping Tax Exemption (Federal Exemption), currently $13,990,000 per individual, was set to drop to about $7,000,000 per individual. However, the One Big Beautiful Bill Act, signed into law on July 4, 2025, halts this reduction and instead increases the Federal Exemption to $15,000,000 per individual ($30,000,000 for a married couple), indexed annually for inflation, starting on January 1, 2026. The federal estate, gift, and generation-skipping tax rate will remain at 40% of the amount exceeding the Federal Exemption.
Although this change reduces or even eliminates federal estate tax and gift tax exposure for many, it is important for individuals to plan for state estate tax and gift tax and ensure their estate plans are up-to-date and reflect their current wishes and circumstances. As an example of how state estate and gift tax rules differ from federal, we have highlighted below the following three states: New York, Connecticut, and New Jersey.
New York
The New York Estate Tax Exemption (NY Exemption) is currently $7,160,000 per individual. Unlike the Federal Exemption, the NY Exemption is not portable (i.e., transferable) between spouses – you either use it (by funding a Credit Shelter Trust or distributing assets at death to a child, grandchild, etc.) or you lose it.
It is important to note that New York has what is referred to as an “estate tax cliff,” which means that estates that exceed the exemption threshold by more than 5% are subject to estate tax on the full value of the decedent’s estate, not only the portion above the exemption threshold. New York’s estate tax top rate is approximately 16%.
New York does not have a gift tax, but does “claw back” gifts that exceed the annual gift tax exclusion amount (currently $19,000 per recipient or $38,000 per married couple) made within three years of an individual’s date of death. Gifts that are “clawed back” are included when determining the value of a decedent’s estate.
Connecticut
The Connecticut Estate Tax Exemption (CT Exemption) is currently $13,990,000 per individual. Like New York, the CT Exemption is not portable between spouses.
Unlike New York, Connecticut does have a gift tax. Also, lifetime gifts in excess of the annual gift tax exclusion amount decrease an individual’s CT Exemption.
Connecticut imposes a 12% estate tax on assets exceeding the exemption threshold but will not subject estates to more than $15,000,000 in estate tax.
New Jersey
New Jersey residents are not subject to estate tax or gift tax. However, New Jersey does have an inheritance tax of up to 16% on assets passing to beneficiaries other than spouses, civil union partners, children, grandchildren, parents, grandparents, and stepchildren.
Be Prepared – Plan Ahead
Although the Federal Exemption is currently at a historic high, it remains essential to have comprehensive estate planning documents in place. Careful planning for incapacity and death ensures that your loved ones are provided for and allows you to designate who will implement your intentions and how they will be executed. If you already have an estate plan, it is advisable to review it periodically—typically every few years—to address any changes in circumstances, such as the passing of a family member, the birth of a grandchild, or significant financial developments.
For high net-worth individuals facing an estate tax despite the historically high Federal Exemption, comprehensive strategies such as strategic gifting, charitable contributions, and the implementation of trusts are vital to ensure the preservation of family wealth across generations.
Commonly Asked Questions:
Q: Following the enactment of the One Big Beautiful Bill Act, is an insurance trust still necessary?
A: Yes, given the evolving nature of tax laws, an insurance trust remains valuable as it can exclude life insurance proceeds from your taxable estate and, depending on its terms, may also offer asset protection.
Q: Should I continue to fund my Spousal Lifetime Access Trust (SLAT)?
A: Yes, funding a SLAT enables the removal of assets and their future appreciation from your taxable estate. Considering the changing landscape of tax laws, it is advisable to capitalize on the current historically high Federal Exemption in case the exemption is reduced in the future.
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Fact of the Month:
The current annual gift tax exclusion amount is $19,000 per recipient (or $38,000 for married couples). These annual gifts, along with direct payments for tuition and medical expenses, do not reduce your available Federal Exemption. Gifts may be made outright, placed in trust, or contributed to a 529 college savings plan. Additionally, it is possible to “front-load” a 529 college savings plan by contributing up to five years’ worth of gifts to maximize the benefit.
For more information, please contact our Trusts, Estates and Private Client Services Practice Group, the authors, the Garfunkel Wild attorney with whom you regularly work, or email us at [email protected].