Your Estate Plan Was Built for a Tax Law That Never Happened

The OBBBA killed the sunset and made the $15 million exemption permanent. If your estate plan was drafted to beat a deadline that passed, it may now be quietly working against your family.

Between 2023 and 2025, a lot of families spent a lot of money on estate planning they probably didn’t need. That sounds harsh. But it’s the reality advisors and estate attorneys are confronting right now.

The reason for all that urgency was a deadline. The Tax Cuts and Jobs Act had temporarily doubled the federal estate tax exemption, and that increase was scheduled to expire on December 31, 2025. If Congress did nothing, the exemption would drop from roughly $14 million per person back to about $7 million. Families scrambled. Attorneys’ offices were booked out for months. Irrevocable trusts were funded. Large taxable gifts were made. Spousal Lifetime Access Trusts, or SLATs, were created in record numbers.

Then the One Big Beautiful Bill Act passed on July 4, 2025, and none of it happened the way anyone expected. The exemption didn’t drop. It went up, to $15 million per person and $30 million for married couples. And this time, there’s no sunset. The increase is permanent. An estate plan review after the OBBBA in 2026 isn’t optional for anyone who planned around that deadline. It’s the single most important financial housekeeping item of the year.

What the OBBBA Actually Changed

The mechanics matter here, because the details determine whether your existing plan still works or quietly breaks.

Before the OBBBA, the TCJA had raised the federal estate and gift tax exemption to roughly $13.99 million per person for 2025. That increase was temporary. It was set to revert to approximately $7 million, indexed for inflation, on January 1, 2026. The OBBBA replaced that temporary increase with a permanent one: $15 million per person, $30 million for married couples, effective January 1, 2026. Starting in 2027, the exemption is indexed for inflation using 2025 as the base year.

The 40% federal estate tax rate on amounts above the exemption hasn’t changed. The annual gift tax exclusion stays at $19,000 per recipient in 2026. The step-up in basis at death is preserved. And the generation-skipping transfer tax exemption also rose to $15 million, though unlike the estate tax exemption, the GST exemption is not portable between spouses.

Three Ways Your Estate Plan Breaks Under the New Law

Estate planning attorneys are flagging three specific problems showing up repeatedly in documents drafted before 2026. None of these require a $15 million estate to matter.

1. Formula clauses that now overfund a bypass trust

This is the most dangerous one, and it’s also the hardest to spot without a professional review. Many estate plans, particularly those drafted before 2012, include what attorneys call “formula clauses.” These are provisions that automatically direct assets “up to the federal estate tax exemption amount” into a bypass trust (sometimes called a credit shelter trust), with the remainder going to the surviving spouse.

The formula was designed to be flexible. When the exemption was $1 million or $3.5 million, it sheltered a reasonable amount. The problem: that same formula language now automatically directs up to $15 million into the trust. For a couple with a $6 million estate, the formula could send everything into the bypass trust and leave the surviving spouse with nothing passing to them directly. For a couple with $18 million, it could send $15 million to the trust and leave only $3 million for the spouse who needs to live on it.

2. SLATs and irrevocable trusts built for a deadline that passed

Many families created Spousal Lifetime Access Trusts, GRATs, or ILITs specifically to lock in the higher TCJA exemption before the anticipated sunset. These are irrevocable structures. Assets placed inside them generally can’t be taken back.

The good news: gifts made under the higher TCJA exemption remain valid. The IRS confirmed through its 2019 anti-clawback regulations that those gifts won’t be penalized, even if the exemption had dropped. With the exemption now at $15 million, those gifts are fully covered.

The harder question is whether the structures themselves still serve the family’s goals. A SLAT created in 2024 to beat the sunset might have locked up assets the family no longer needs to shelter from estate tax. Worse, assets inside irrevocable trusts generally don’t receive a step-up in basis at death, which means heirs could face capital gains taxes that wouldn’t exist if the assets had stayed in the taxable estate. If the trust was driven primarily by deadline urgency rather than long-term family objectives, it deserves a second look.

3. The planning focus needs to shift from estate tax to income tax

This is the structural shift that most families haven’t processed yet. With the federal exemption at $15 million per person, a large portion of high-net-worth families simply don’t have a federal estate tax problem anymore. For those families, income tax has become the more pressing concern, and many of their existing plans are optimized for the wrong tax.

The clearest example is inherited retirement accounts. Under the SECURE Act’s 10-year rule, most non-spouse beneficiaries must withdraw an inherited IRA within 10 years and pay ordinary income tax on every dollar. A $1 million IRA left to a child in a high tax bracket could generate $350,000 to $400,000 in income taxes. Meanwhile, the step-up in basis at death eliminates capital gains on appreciated assets that pass through the estate. A plan that moved appreciated stock into an irrevocable trust to reduce the taxable estate may have traded zero estate tax exposure for a real capital gains tax bill that didn’t need to exist.

Before and After the OBBBA: What Changed

Planning Element	Before OBBBA (2025)	After OBBBA (2026)
Federal exemption per person	$13.99 million (temporary)	$15 million (permanent)
Couple’s combined exemption	$27.98 million	$30 million
Sunset provision	Expiring Dec 31, 2025	Eliminated entirely
Inflation indexing	Annual (from 2018 base)	Annual starting 2027 (2025 base)
Federal estate tax rate	40%	40% (unchanged)
Annual gift exclusion	$19,000 per recipient	$19,000 per recipient (unchanged)
Step-up in basis	Yes	Yes
Primary planning focus	Beat the sunset deadline	Income tax and basis optimization

Questions to Ask Your Estate Attorney This Year

Not every plan needs a full overhaul. But every plan drafted before 2026 needs these questions answered.

1. Does my plan contain formula clauses that reference the federal exemption amount, and if so, what dollar figure does that formula now direct?
2. Are my beneficiary designations on retirement accounts and life insurance policies current, and do they align with the trust and will?
3. Did I fund irrevocable trusts or make large gifts in 2023 through 2025 specifically to beat the TCJA sunset?
4. Are appreciated assets currently inside irrevocable trusts that would have received a step-up in basis if they’d stayed in my estate?
5. Has the overall plan been evaluated for income tax exposure to my heirs, not just estate tax exposure?
6. Do I own property or have assets in a state with its own estate tax, and is my plan accounting for that separate threshold?
7. Have my named executors, trustees, and guardians been reviewed since the plan was created?

Red Flags That Your Plan Needs Immediate Attention

• Your estate plan was drafted before 2018 and you haven’t reviewed the trust distribution formulas since.
• You funded an irrevocable trust in 2024 or 2025 and the primary motivation was beating the sunset deadline.
• Your total estate, including life insurance death benefits, is between $5 million and $15 million and your plan still focuses on estate tax avoidance.
• You haven’t updated beneficiary designations on retirement accounts or insurance policies in over three years.
• Highly appreciated assets (stocks, real estate) are sitting inside an irrevocable trust that won’t receive a step-up in basis at your death.
• You live in or own property in a state with its own estate tax (New York, Massachusetts, Oregon, Illinois, Washington, and others) and your plan only addresses the federal exemption.

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The Bottom Line

The biggest estate planning mistake of 2026 isn’t failing to plan. It’s assuming that a plan built for a different tax landscape still works. The OBBBA didn’t just raise the exemption. It removed the deadline that had been driving every planning decision for years. That’s genuinely good news for most families, but it also means that plans built around urgency, sunset-driven trusts, and formula clauses tied to a lower exemption may now be quietly creating problems nobody sees until it’s too late.

An estate plan review doesn’t always mean starting over. Sometimes it means confirming that the formula clause in your trust now directs a number that still makes sense. Sometimes it means shifting the conversation from estate tax to income tax and basis planning. And sometimes it means acknowledging that the expensive, complicated structure you funded in 2024 served its purpose at the time but needs a different approach going forward.

One meeting with a qualified estate planning attorney can answer most of these questions. Given what’s changed, it’s worth the hour.

This content is for informational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified fiduciary advisor before making significant financial decisions.