One Big Beautiful Bill Act: Impact on Estate and Gift Taxes

How the Law Affects High-Net-Worth Families—and What to Do Now

The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, brings sweeping and permanent changes to the federal estate, gift, and generation-skipping transfer (GST) tax system. It preserves several benefits first enacted under the Tax Cuts and Jobs Act (TCJA), including increased lifetime transfer exemptions. However, many states—including Illinois—have their own estate taxes with lower thresholds, creating complexity even as the federal landscape stabilizes.

This article explains (1) what would have happened if the OBBBA had not passed, (2) what the law now provides starting in 2026, and (3) key planning strategies going forward, especially for Illinois residents.

1. What Would Have Happened Without the OBBBA?

The 2017 TCJA temporarily doubled the federal estate, gift, and GST tax exemptions, which by 2025 had reached $13.99 million per person due to inflation indexing. However, these provisions were set to expire at the end of 2025. Without the OBBBA:

• The exemption would have reverted to the pre-TCJA level of $5 million, indexed for inflation—likely around $6–7 million per person in 2026.
• Estates exceeding that amount would have faced the 40% federal estate tax, with a much smaller exemption.
• Lifetime gifts above that reduced exemption would also have been subject to gift tax.
• Many estates that currently avoid federal tax would have become taxable again, creating urgency for high-net-worth families to act before the sunset.

2. What the OBBBA Now Provides

The One Big Beautiful Bill Act made key provisions of the TCJA permanent, and increased certain thresholds. Starting January 1, 2026, the federal transfer tax regime is:

• Unified estate, gift, and GST tax exemption: $15 million per person, or $30 million per married couple, indexed annually for inflation.
• Top federal transfer tax rate: Remains at 40% on amounts above the exemption.
• Portability: Continues to apply, allowing a surviving spouse to use the deceased spouse’s unused exemption.

3. Federal Estate and Gift Tax Landscape – At a Glance

The annual gift tax exclusion, which allows gifts without using any lifetime exemption, is also adjusted annually. The amount for 2025 is $19,000 per recipient.

4. Illinois Estate Tax Considerations

While the OBBBA significantly improves the federal landscape, Illinois imposes its own estate tax:

• Exemption amount: $4 million per person (not indexed for inflation).
• Portability: Not permitted—unlike federal law. Therefore, make sure both spouses are able to use the full exemption amount.
• Tax rates: Graduated, with a top rate of 16%.
• Gift tax: Illinois does not impose a gift tax, but prior taxable gifts may be brought back into the Illinois estate for tax purposes.

This means many Illinois estates may owe state estate tax even if they owe no federal tax. For example, a $10 million estate for an Illinois resident in 2026 would owe zero federal estate tax but may owe several hundred thousand dollars in Illinois estate tax.

5. Planning Strategies Going Forward

With the OBBBA providing clarity, now is the time to consider strategic adjustments to estate and gift planning.

• Use the $15 Million Exemption Strategically
• Address Illinois Estate Tax Exposure
• Maximize the 2025 Annual Gift Exclusion – $19,000
• Use Valuation Discounts When Appropriate
• Review Estate Plan Documents and Formulas
• Consider Charitable Planning Options

6. Basis Step-Up vs. Lifetime Giving

One trade-off in gifting appreciated assets is the loss of step-up in basis at death. Assets gifted during life retain the donor’s basis, potentially triggering capital gains tax when sold. Assets transferred at death receive a step-up in basis to fair market value, eliminating built-in capital gains.

Conclusion

The One Big Beautiful Bill Act brings long-awaited permanence and clarity to federal estate and gift tax planning by locking in a $15 million exemption, indexed for inflation, beginning in 2026. However, for residents of states like Illinois, the planning picture remains complex due to a separate $4 million state estate tax exemption, lack of portability, and potentially significant state-level liabilities.

A well-designed plan can maximize tax savings, preserve family wealth, and provide flexibility for future generations—no matter how the tax laws evolve. Reach out to your F+H tax advisor to stay ahead of this.