The Estate Tax Exemption Just Went Up, Not Down. What Families with Significant Assets Should Know Right Now.

If you spent the last two years bracing for the estate tax exemption to get cut in half, you can exhale. Congress went the other direction. The One Big Beautiful Bill Act, signed into law on July 4, 2025, permanently raised the federal estate tax exemption to $15 million per person starting January 1, 2026. For married couples, that's $30 million. No sunset. No expiration date. And that changes the planning conversation entirely.

What Actually Happened to the Estate Tax Exemption?

The Tax Cuts and Jobs Act (TCJA), passed in 2017, temporarily doubled the federal estate tax exemption from roughly $5.5 million to $11 million per person, indexed for inflation. By 2025, the exemption had grown to $13.99 million per person ($27.98 million for a married couple). Those provisions were scheduled to expire on December 31, 2025, which would have dropped the exemption back to roughly $7 million per person.

That sunset never happened.

On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA), which permanently increased the estate, gift, and generation-skipping transfer tax exemptions to $15 million per person starting January 1, 2026. Beginning in 2027, that amount will be adjusted annually for inflation. Unlike the TCJA, there is no sunset provision built into this law, though of course a future Congress could always change it.

For Colorado families in mining, energy, or executive compensation, this is significant. The frantic "use it or lose it" gifting push of late 2024 and early 2025 is over. But that does not mean your estate plan can sit untouched.

Am I Still Affected? How Do I Know If My Estate Is Large Enough?

Under the current $15 million exemption ($30 million for married couples), far fewer families face federal estate tax exposure than under the old projections. If your net worth is below those thresholds, you are unlikely to owe federal estate tax.

But "unlikely to owe estate tax" is not the same as "nothing to do." Here is where the new planning issues come in.

Your net worth still includes your home, retirement accounts, investments, business equity, real estate, and life insurance death benefits. For executives with concentrated equity compensation or business owners with appreciated real estate, those numbers can add up faster than expected, especially in cyclical industries where asset values swing.

Colorado has no state estate tax, which remains a genuine advantage. The federal tax rate on amounts above the exemption is still 40 percent. And if you own property in a state that does levy its own estate or inheritance tax (like New York or Oregon), your estate may still have exposure in that jurisdiction regardless of your Colorado residency.

If the Exemption Went Up, Why Do I Still Need to Review My Plan?

Three reasons, and they are all more important than the headline number suggests.

First, your existing trust documents may need updating. Many trusts created in the 2010s or early 2020s contain "formula clauses" that fund a credit shelter or bypass trust up to the federal exemption amount. When those trusts were drafted, the exemption was $5 million or $11 million. Under a $15 million exemption, those same formulas could now over-fund the bypass trust, potentially denying your surviving spouse a step-up in basis at their death and creating unnecessary income tax consequences. If your trust was drafted before 2026 and uses exemption-based formulas, get it reviewed this quarter.

Second, income tax planning now matters more than estate tax planning for most families. With the exemption permanently elevated, the bigger risk for many Colorado families is not transfer tax but capital gains tax. Assets that pass at death receive a step-up in basis to fair market value, which can eliminate decades of unrealized gains. Assets gifted during your lifetime carry over your original cost basis. For appreciated real estate, concentrated stock positions, or business interests, this distinction can mean hundreds of thousands of dollars in tax savings. The planning question has shifted from "how do I get assets out of my estate?" to "should I keep assets in my estate for the basis step-up?"

Third, this exemption is "permanent" until it is not. Congress can always change the law. The current political environment favors high exemptions, but a future administration could push for a reduction. Building flexibility into your plan now, through tools like powers of appointment, trust protectors, and disclaimer provisions, positions your family to adapt without starting over.

What About My Spouse and Kids?

If you are married, the exemption is portable. Your surviving spouse can use any unused portion of your exemption, but only if your executor files Form 706 (the federal estate tax return) to claim it, even if no taxes are owed. Miss that deadline and you lose it. This has not changed under the new law.

On inherited retirement accounts, the 10-year distribution rule introduced by the SECURE Act of 2019 still applies. When a non-spouse beneficiary inherits a traditional IRA or 401(k), the account must generally be fully distributed within 10 years of the original owner's death. If the original owner had already started taking required minimum distributions before death, the beneficiary must also take annual RMDs during years 1 through 9, with the remaining balance distributed by year 10. The IRS finalized these rules in 2024, and the waiver period for missed RMDs (2021 through 2024) has ended. Starting in 2025, missed distributions trigger a 25% excise tax.

For families with large retirement accounts, this means planning around the income tax acceleration of inherited IRAs is often more impactful than estate tax planning. Roth conversions during your lifetime, strategic distribution timing, and coordination with your overall income plan deserve a dedicated conversation with your CPA.

What's My Next Move?

Schedule time with a qualified estate attorney this quarter. Bring your most recent financial statement, your will or trust (if you have one), and a list of your assets, including any business interests or real estate. The specific answers depend on your goals, family structure, tax bracket, and risk tolerance.

The urgency is different from what it was a year ago. This is not about racing to lock in a shrinking exemption. It is about making sure your existing documents, trusts, and strategies actually work the way you intend under the new law. For many Colorado families, the biggest risk right now is not the estate tax. It is an outdated plan that creates unintended consequences under a $15 million exemption that nobody expected.

This is the quarter to review, not react. The law just gave you more room. Make sure your plan uses it well.

These are general strategies and may not be right for your specific situation. If you'd like to discuss how these apply to your plan, schedule a complimentary call. Connect with a Mountain Legacy Advisor today.