New Law Makes Permanent Changes to the Federal Estate Tax

For several years, a significant question has loomed over long-term estate planning for many families. A “sunset provision” in the federal tax code was scheduled to dramatically reduce the amount of assets a person could pass on tax-free at the end of 2025. This created considerable uncertainty, making it difficult to craft enduring financial strategies for future generations.

At Baddour Law Firm, our commitment is to help our clients navigate the complexities of estate planning by staying ahead of legislative shifts. A new law, the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has resolved this uncertainty for now. This legislation alters the landscape of the federal estate tax, providing new stability and opportunities for wealth transfer.

What Was the “Sunset Provision” in the Prior Law?

To grasp the importance of this new act, it is helpful to look at the law it replaced. The Tax Cuts and Jobs Act (TCJA), passed in 2017, temporarily doubled the federal estate tax exemption. This exemption represents the value of assets you can transfer upon your death without being subject to federal estate tax.

With annual inflation adjustments, the exemption under the TCJA reached $13.99 million for an individual (or nearly $28 million for a married couple) in 2025. However, this amount was temporary. The TCJA included a “sunset provision” that would have caused the exemption to expire on December 31, 2025. 

If Congress had not acted, the exemption would have reverted to its pre-TCJA level, which was projected to be around $7 million per person in 2026. This potential 50% reduction was a major factor in estate planning decisions over the last several years.

What Are the Key Changes Under the “One Big Beautiful Bill Act”?

The OBBBA directly addresses the expiring sunset provision and goes a step further by increasing the exemption amount. This provides a more predictable foundation for estate planning.

The most significant changes to the federal estate and gift tax exemption include:

• A Permanent Exemption: The new law eliminates the sunset clause. This makes the higher exemption a permanent part of the U.S. tax code, although any future Congress could enact new legislation to change it again.
• An Increased Exemption Amount: Starting in 2026, the OBBBA sets the federal estate and gift tax exemption at $15 million per individual. This allows a married couple to pass on a combined total of $30 million without incurring federal estate tax.
• Annual Adjustments for Inflation: The new $15 million base will continue to be adjusted for inflation each year, allowing the exemption to grow over time.

This legislation replaces a projected $7 million exemption with a permanent, inflation-adjusted $15 million exemption, marking a significant shift in federal policy.

How Does This Affect Estate Planning in Maryland?

The establishment of a permanent, higher federal estate tax exemption provides more clarity and opportunity for individuals and families in Maryland.

• Greater Stability for Long-Term Planning: The primary benefit of the OBBBA is the end of the uncertainty caused by the sunset provision. This allows for the creation of multi-generational estate plans with a much clearer understanding of the tax implications.
• More Assets Can Be Transferred Tax-Free: A $15 million per-person exemption means more families can protect their assets from federal estate, gift, and generation-skipping transfer (GST) taxes.
• “Portability” Remains a Key Tool: The law preserves the “portability” provision for married couples. Portability allows a surviving spouse to use any of their deceased spouse’s unused exemption. This effectively permits a couple to shield up to $30 million, plus future inflation adjustments, from the federal estate tax.

With a Higher Federal Exemption, Is Estate Planning Still Necessary?

Yes, absolutely. While the changes to the federal estate tax are welcome news for many, they do not eliminate the need for careful and comprehensive estate planning. The federal tax is just one piece of a much larger puzzle.

Consider these important points:

• Maryland Has Its Own Estate and Inheritance Taxes: This is a critical distinction for residents of our state. Unlike the majority of states, Maryland imposes both an estate tax and an inheritance tax. The Maryland estate tax exemption is significantly lower than the new federal exemption. Therefore, even if your estate is not large enough to trigger federal taxes, it could still be subject to state taxes. Furthermore, Maryland’s inheritance tax is based on who receives the assets, with taxes levied on distributions to more distant relatives, like nieces, nephews, or friends. A proper estate plan is essential to minimize this tax liability.
• Planning Beyond Taxes: The core purpose of estate planning has always been about more than just taxes. A well-designed plan ensures your assets are distributed exactly how you wish, protects your beneficiaries, names guardians for your minor children, and prepares for your own potential incapacity through powers of attorney and healthcare directives. These vital objectives are completely independent of the federal exemption amount.
• The Law Can Always Change: In the legal world, “permanent” simply means there is no scheduled expiration date. It does not mean the law can never be changed. A future Congress could decide to lower the exemption, raise the tax rate, or make other significant changes. Regular reviews of your estate plan are the only way to ensure it remains effective in a changing legal environment.

Contact Our Experienced Maryland Estate Planning Lawyers Today

The new federal legislation has created a different framework for wealth preservation and transfer. For those whose estate plans were designed around the previous rules, now is the time to review and update your documents to align them with the current legal landscape.

At Baddour Law Firm, we guide Maryland residents through every step of the estate planning process. We can help you understand how these new federal laws impact your specific situation and work with you to draft a comprehensive plan that addresses state tax concerns and accomplishes your most important non-tax goals. We are dedicated to providing the detailed, personalized counsel you need to protect your family’s future.

Contact us today at 301-494-2108 to schedule a consultation. Our experienced team is ready to help you navigate these important decisions with confidence.