This is the second article in my three-part series on the One Big Beautiful Bill Act (OBBBA). After covering tax optimization in my first article, I want to shift focus to estate planning. The OBBBA introduces some of the most significant estate planning changes we've seen in years, and I believe understanding these provisions could fundamentally transform how you approach wealth transfer and legacy planning.

 

For affluent retirees and pre-retirees with substantial assets, these changes represent both unprecedented opportunities and new complexities that require immediate attention. My goal is to break down these provisions clearly so you can make informed decisions about your family's financial future.

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The Estate Planning Landscape Under the OBBBA

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The OBBBA fundamentally reshapes estate planning for high-net-worth individuals through two major provisions that create lasting planning opportunities. Unlike previous temporary measures, these changes provide the long-term certainty that sophisticated estate planning requires.

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For affluent retirees managing substantial portfolios, real estate holdings, and business interests, the bill's estate planning provisions offer a rare combination of increased exemptions and enhanced planning flexibility. This stability allows for multi-generational wealth transfer strategies that can be implemented with confidence rather than the urgency that characterized previous legislative changes.

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Why This Matters Regardless of Estate Size

 

Even if your estate is not projected to exceed the new $15 million exemption, the OBBBA contains strategies that are broadly relevant. Planning tools such as charitable giving, family trusts, and the structuring of gifts can help you achieve tax efficiency, support loved ones, and ensure your assets transfer according to your wishes. Establishing these strategies now also positions you to adapt if your financial circumstances change in the future. Ultimately, estate planning is not only about tax avoidance, but also about fulfilling your intentions for your legacy with clarity and security.

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Permanent Estate Tax Exemption Increase: A Game-Changer

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The Big Change: $15 Million per Individual

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The OBBBA permanently increases the federal estate and gift tax exemption to $15 million per individual ($30 million for married couples), representing a $1.1 million increase from the 2025 exemption of $13.99 million. Starting in 2026, these amounts will be indexed for inflation, providing ongoing protection against the erosion of purchasing power.

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This permanent increase removes the uncertainty that has plagued estate planning since the Tax Cuts and Jobs Act's temporary provisions were set to expire. For the first time in years, families can implement long-term strategies without worrying about legislative sunsets.

 

Strategic Implications for Affluent Retirees:

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The increased exemption creates immediate planning opportunities for families who previously faced potential estate tax exposure. Consider a married couple with a $25 million estate who previously needed complex strategies to avoid estate taxes. Under the new rules, they can transfer their entire estate tax-free, fundamentally changing their planning approach.

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However, the real opportunity lies not just in avoiding taxes, but in optimizing the additional exemption capacity for wealth transfer and growth strategies.

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Advanced Wealth Transfer Strategies

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Dynasty Trusts: Multi-Generational Wealth Preservation

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Dynasty trusts have become increasingly attractive under the OBBBA's permanent exemption structure. These irrevocable trusts can exist in perpetuity in certain states, allowing wealth to grow for multiple generations without estate or gift tax consequences.

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Implementation Strategy:

 

A 60-year-old business owner with $20 million in assets could establish a dynasty trust, funding it with $15 million using their full exemption. If the trust assets grow at 6% annually, the trust could be worth over $64 million in 25 years, all outside the estate tax system.

 

Key Considerations:

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• Choose trust-friendly jurisdictions

 

• Structure distributions to provide flexibility for changing family circumstances

 

• Consider appointing independent trustees to maintain objectivity

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• Include provisions for changing beneficiaries as family situations evolve

 

Spousal Lifetime Access Trusts (SLATs): Flexibility with Protection

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SLATs offer an appealing compromise for couples who want to utilize their exemptions while maintaining some access to transferred assets. One spouse creates an irrevocable trust for the benefit of the other spouse and their children, using their gift tax exemption while preserving indirect access to the assets.

 

Strategic Applications:

 

• Complementary SLATs: Each spouse creates a SLAT for the other, potentially doubling the amount transferred while maintaining family access

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• Asset protection: Trust assets are generally protected from the grantor's creditors

 

•  Income tax benefits: Properly structured SLATs can provide income tax advantages through grantor trust status

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Critical Planning Points:

 

• Avoid the "reciprocal trust doctrine" by varying trust terms, timing, and beneficiaries

 

• Consider different asset types for each SLAT to diversify trust holdings

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• Plan for potential divorce or spousal death scenarios

 

Generation-Skipping Transfer Tax Optimization

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The OBBBA aligns the generation-skipping transfer (GST) tax exemption with the new $15 million estate and gift tax exemption, creating enhanced opportunities for multi-generational planning.

 

Direct Skip Opportunities:

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Grandparents can now transfer up to $15 million directly to grandchildren without GST tax consequences, effectively bypassing their children's generation for estate tax purposes.

 

Example Strategy:

 

A 65-year-old grandmother with significant wealth could establish trusts for each grandchild, funding them with $5 million each (within her $15 million exemption). These trusts can grow for decades, providing education funding, housing assistance, and other support without ever being subject to estate taxes in the children's generation.

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Charitable Giving Integration

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Charitable Remainder Trusts (CRTs) Enhanced by Higher Exemptions

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The increased exemptions make charitable remainder trusts more attractive by providing greater flexibility in structuring the remainder interest that passes to heirs.

 

Optimization Strategy:

 

A retiree with highly appreciated assets can contribute them to a CRT, receive income for life, and structure the remainder to pass to both charity and family members. With higher exemptions, more of the economic benefit can flow to heirs while still achieving significant charitable objectives.

 

Charitable Lead Annuity Trusts (CLATs) for Wealth Transfer

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CLATs allow the transfer of significant wealth to heirs at reduced gift tax costs by providing an income stream to charity for a specified period.

 

Implementation Example:

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A business owner anticipating significant appreciation in company value could transfer shares to a CLAT. The trust pays a fixed annuity to charity for a term of years, with remaining assets passing to children. If the assets appreciate faster than the discount rate used for gift tax purposes, substantial value transfers to heirs at minimal gift tax cost.

 

Business Succession Planning Under the OBBBA

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Enhanced Opportunities for Family Business Transfers

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The permanent nature of the higher exemptions provides unprecedented planning opportunities for family-owned businesses. Business owners can now implement succession strategies with confidence, knowing the rules won't change unexpectedly.

 

Grantor Retained Annuity Trusts (GRATs) with Higher Exemptions:

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GRATs remain powerful tools for transferring business interests, and the higher exemptions provide additional flexibility for structuring these transactions. Business owners can use their exemptions for other transfers while implementing GRAT strategies for business interests expected to appreciate rapidly.

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Family Limited Partnerships (FLPs) Enhancement:

 

Consider restructuring existing FLPs to take advantage of additional exemption capacity. Limited partnership interests can be gifted to family members, with valuation discounts for lack of control and marketability potentially enhancing the transfer efficiency.

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Risk Management and Implementation Considerations

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Timing Strategies for Maximum Benefit

While the exemptions are permanent, optimal implementation requires careful timing considerations:

 

Immediate Actions for 2025:

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• Complete gift tax returns for any 2024 gifts exceeding previous exemption levels

• Consider accelerating planned transfers to take advantage of current valuation levels

• Review existing estate planning documents to ensure alignment with new exemption levels

 

Multi-Year Implementation:

 

• Spread large transfers over multiple years to manage income tax consequences

• Coordinate transfers with market conditions to optimize valuation benefits

• Plan liquidity needs for any estate taxes that may still apply to very large estates

 

Professional Coordination Requirements

The complexity of these strategies requires coordinated professional guidance:

 

Essential Team Members:

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• Estate planning attorney familiar with current OBBBA provisions

• Tax advisor experienced with gift and estate tax planning

• Financial advisor capable of implementing sophisticated trust investment strategies

• Valuation experts for business interests and complex assets

 

Monitoring and Adaptation Strategies

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Staying Responsive to Future Changes

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While the OBBBA's estate tax provisions are permanent, successful estate planning requires ongoing attention to regulatory developments and family circumstances.

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Annual Review Components:

 

• Monitor inflation adjustments to exemption amounts starting in 2026

• Track changes in state estate tax laws that may affect overall planning

• Assess family circumstances that might require trust modifications

•  Evaluate investment performance and consider rebalancing strategies

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Documentation and Record Keeping:

 

Maintain detailed records of all gift tax elections, trust formations, and valuation decisions. These documents will be crucial for future tax compliance and family understanding of the planning strategies.

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Looking Ahead: Preparing for Article Three

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This article has focused on the foundational estate planning opportunities created by the OBBBA's permanent exemption increases. However, estate planning intersects significantly with healthcare costs and retirement account strategies, which I'll explore in the final article of this series.

 

The third article will address how Medicare premium surcharges (IRMAA), potential changes to Roth IRA rules, and healthcare cost management strategies integrate with the estate planning concepts discussed here. We'll also cover the critical implementation timeline and action steps needed to optimize your overall financial plan under the new legislation.

 

The OBBBA represents a generational opportunity for affluent retirees to implement comprehensive estate planning strategies with unprecedented certainty. By understanding these provisions and acting thoughtfully, you can create a lasting legacy that reflects your values while providing security for future generations.

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If you'd like to discuss how these estate planning opportunities might apply to your specific situation, I'm here to help develop strategies tailored to your family's needs. Please reach out to Darlene at darlene@shepherdwealth.com or 520-325-1600 ext. 1, or CLICK HERE to schedule a time for us to talk.

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David W. Shepherd Jr. CFP®
CEO
6300 E El Dorado Plaza, Suite A200
Tucson, AZ 85715

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david@shepherdwealth.com
Phone: 520-325-1600
Fax: 520-325-9097

www.shepherdwealth.com​

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