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The Sun Didn’t Set After All
Published Date : July 31, 2025
Two of the most crucial steps in a successful financial plan are tax planning and estate planning. And like most important things in life, they are not a “one and done” endeavor but one that requires ongoing review and occasional adjustments to stay on track towards goals. For clients who are likely to have a taxable estate, the past few years brought reminders to “use or potentially lose” their exemption—which had grown to $13.99M per person in January of this year—by making taxable gifts before the anticipated sunset and reversion to an inflation adjusted $5M per person on December 31, 2025. The passage of the One Big Beautiful Bill Act (OBBBA) earlier this month confirmed that the sun would continue shining on federal estate, gift tax, and generation-skipping transfer tax exemption amounts for the foreseeable future when it raised the amount once again.
We’ve all heard the phrase, “In this world nothing can be said to be certain, except death and taxes,” but transfer taxes were only a temporary source of revenue used to fund wars and national emergencies until 1916 when lawmakers cleverly combined death and taxes with the passage of a permanent estate tax. Also referred to as an inheritance tax, this tax is imposed on transfers at death over and above an exemption amount set by Congress. For over one hundred years since its inception, the exemption amount has steadily increased rising from $50k in 1916 to $675k in 2001, then to $3.5M in 2009 and—coming soon!—$15M per person or $30M per married couple in 2026 due to the passage of OBBBA. As a bonus, the amount will also be inflation-adjusted in years after 2026 (using the 2025 exemption amount as the base year) and is, for now, permanent.
In addition to the estate tax, a separate gift tax was first enacted in 1924, then repealed, and finally made permanent in 1932, largely to prevent the avoidance of estate tax by simply giving everything away before death. As the name suggests, this tax is imposed on gifts made during one’s lifetime that are over the annual exclusion amount, which is currently $19k per person in 2025. It is anticipated to remain at this level in 2026 but adjust for inflation thereafter. The lifetime gift tax exclusion has been made permanent by OBBBA and is also $15M per person beginning January 1, 2026.
In 1976, Congress “unified” the estate and gift tax, meaning transfers made during life or at death are treated the same for tax purposes, and introduced a generation-skipping transfer tax (GSTT)—to the dismay of grandchildren everywhere!—as it closed the loophole on transfers to individuals 37 ½ years younger than the donor, known as “skip persons” which had previously avoided the federal estate tax. The GSTT exemption amount will also increase to $15M per person in 2026 along with the federal estate and gift tax, and is for now, permanent.
Finally, OBBBA also maintained the “portability” provision that allows a surviving spouse to use any of their deceased spouse’s unused exemption amount, provided they file a federal estate tax return (known as Form 706) generally within nine months of the date of death.
With the waiting game of “will Congress take action before the sunset or won’t they?” now over and the estate and gift tax and GSTT now made permanent, wealth transfer planning doesn’t need to be rushed. Decisions about how and when to make gifts to children and grandchildren (or not) should be made thoughtfully and with the entire financial planning team of wealth advisor, estate planning attorney, and tax advisor engaged and working together for the purpose of a common goal.
Sources: bipartisanpolicy.org, congress.gov, taxpolicycenter.org, irs.gov
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