Whether you like the “Big Beautiful Bill” or not, it has resolved an important estate tax issue. Before the Big Beautiful Bill (BBB), the Federal estate tax exemption set by the Tax Cuts and Jobs Act of 2017 was set to sunset or end on December 31, 2025. However, the BBB has raised the Federal estate tax exemption amount to $15,000,000 per individual, and $30,000,000 for a married couple. This is a significant change to some folks estate plans.
Very few folks have an estate worth more than $15,000,000 (or $30,000,000 for a couple). Texas does not have a separate estate tax or income tax. Thus, most estates in Texas can be handled through a well written Last Will and Testament.
If you own a business, real estate, farm, or ranch, this increase to the Federal estate tax exemption amount is important to your estate. When you consider the value of businesses, real estate, houses, equipment, investment or savings accounts, vehicles, and cattle, an exemption amount lower than $10,000,000 could be a problem.
Before the estate exemption amount was raised, the use of marital deduction trust clause or family limited partnership were the norm for estate planning in those families with substantial assets. These marital deduction trusts were commonly used prior to 2001 when the Federal estate tax exemption limit was $600,000.00.
Another beneficial planning tool is to gift a portion of your cash into a trust that purchases a life insurance policy on you, a parent, or a grandparent. That policy is then owned by the trust, and at death the policy pays into the trust—at a rate of two to ten times the size of the original gift. TAX-FREE. Zero tax. Yes, not one penny to Uncle Sam. In fact, that could leave your family with enough to pay the estate tax and give generously to charities and foundations that you love, as well as provide additional resources for your loved ones.
Along with an increase to the estate tax exemption amount, the annual exclusion for gifts was raised to $19,000, per individual in 2025 and into future years. Parents and grandparents may prefund children’s education through 529 accounts, or paying tutition on behalf of another directly to the school or other educational provider. If you only are paying tuition, the exemption is limited to just tuition fees and no other educational expenses. Other options include paying medical expenses, leveraging lifetime gifts, and charitable giving.
In addition to the Federal estate tax exemption, you should pay close attention to the Federal capital gains tax. This is a tax placed on the appreciated value of real property and investment accounts. To ensure that your family does not have to pay any capital gains tax, transferring property subsequently after your death is important. When property is transferred during your life, the gift tax amount is not the only consideration. By gifting property during your lifetime, you could cause your beneficiary to be in a situation that results in the payment of capital gains taxes of up to 20% of the gain.
Many people are enticed into creating living trusts or revocable trusts. However, you should meet with an attorney experienced in estate planning to see what is the best vehicle for your estate planning needs in your state. They should also discuss with you the importance of powers of attorney (financial and medical), advanced directives (aka living wills) and the other associated documents to make sure those you trust are empowered to assist you without putting your assets at risk (i.e., Do NOT list them on your accounts).