The Estate Tax Exemption Is Now Permanent at $15 Million

Congress has finally acted to resolve the uncertainty surrounding the federal estate tax exemption. The One Big Beautiful Bill Act (OBBBA) was signed into law, and this legislation makes the higher estate tax exemption permanent at approximately $15 million per person. Married couples can now shield up to $30 million from federal estate taxes without complex planning. For many clients, this news brings significant relief. You no longer need to worry about the exemption being cut in half.

The fear of a sudden tax increase has driven many estate planning decisions over the last few years. We spent countless hours discussing the potential return to a roughly $7 million exemption. That sunset provision from the Tax Cuts and Jobs Act is now off the table. Stability allows us to focus on what matters most for your legacy. Tax avoidance remains important, but it is no longer the sole driver for every plan. We can shift our focus to asset protection and orderly distribution.

This change does not mean you should ignore your estate plan. A $15 million exemption covers most estates, but it does not cover everyone. Inflation will continue to adjust this number annually. However, asset values often grow faster than inflation. Real estate and business interests can appreciate rapidly. You must remain vigilant to ensure your estate stays within the protected limits over time.

The Sunset That Never Came

The Tax Cuts and Jobs Act of 2017 doubled the estate tax exemption but included a sunset provision. This provision was scheduled to expire on January 1, 2026. Without new legislation, the exemption would have reverted to roughly $7 million per person. That potential drop caused significant anxiety for high-net-worth individuals. Many people rushed to make large gifts to lock in the higher exemption before it disappeared. The OBBBA eliminates this deadline entirely.

We saw many clients scramble to create Spousal Lifetime Access Trusts (SLATs) and other irrevocable vehicles. These strategies were designed to use the bonus exemption before it vanished. The new law validates the current high exemption levels permanently. You do not need to race against a ticking clock anymore. The pressure to divest assets solely for tax purposes has evaporated. We can now plan with a long-term perspective rather than a defensive one.

Legislative uncertainty is the enemy of effective estate planning. We spent years drafting flexible trust provisions to account for either outcome. Now we have a clear set of rules. The $15 million floor is the new standard. This permanence simplifies the conversation. We can draft documents that rely on this figure without adding complex contingency clauses for a lower exemption scenario.

What This Means for Plans You Already Have in Place

You might wonder if your recent planning was a waste if you already acted to beat the sunset. The answer is generally no. The trusts and gifting strategies you implemented still provide real value. Removing assets from your taxable estate freezes their value for tax purposes. Future appreciation on those assets occurs outside your estate. This remains a powerful way to use your exemption. You also achieved significant creditor protection by moving assets into irrevocable trusts.

Do not rush to unwind these structures. Unwinding an irrevocable trust is difficult and often impossible without court intervention. The assets you transferred are likely protected from lawsuits and future creditors. That benefit exists regardless of the tax law. We should review the administrative provisions of these trusts. You might have more flexibility now to swap assets or change trustees. We can analyze whether the current structure still aligns with your family goals.

Some clients may have funded trusts with low-basis assets. We should re-evaluate that decision. Assets included in your estate at death receive a step-up in basis to their current fair market value. This eliminates capital gains tax for your heirs. Assets in an irrevocable trust generally do not get this step-up. If estate tax is no longer a concern, bringing assets back into your estate might be beneficial to secure that basis adjustment. This requires a careful analysis of the specific trust powers and the trade-offs involved.

Why Estate Planning Still Matters Below $15 Million

A common misconception is that estate planning exists only to avoid federal taxes. A well-built plan manages risk on multiple fronts. Probate avoidance is a primary goal for most families. The probate process is public, time-consuming, and expensive. Fees can consume a percentage of your gross estate. A revocable living trust avoids this entirely. Your assets pass privately and efficiently to your beneficiaries without court interference.

Incapacity planning is another pillar of a solid plan. You need durable powers of attorney for financial and medical decisions. If you become disabled without these documents, your family must petition the probate court for a conservatorship. That process is intrusive and burdensome. A well-drafted trust and power of attorney keep your family in control. You decide who manages your affairs, not a judge. This protection is vital regardless of your net worth.

Protecting your beneficiaries is the third key component. Outright inheritances can be dangerous. A beneficiary might be too young, have substance abuse issues, or be in a difficult marriage. Leaving assets in trust protects the inheritance from their creditors and ex-spouses. We can structure distributions to encourage responsible behavior. You cannot achieve this control with a simple will or joint ownership. The tax law change does not solve these human problems.

Michigan Specifics: No State Estate Tax

Michigan is one of the states without a separate state estate tax. This is a significant advantage for residents. Some states like Illinois, Massachusetts, and Oregon have much lower exemption thresholds. You could owe state tax even if you owe no federal tax. Living in Michigan simplifies the tax calculation. Your primary concern is the federal $15 million limit. This allows us to focus on the federal rules without balancing a competing state regime.

Probate fees in Michigan are inventory-based. The court charges a fee based on the value of the assets passing through probate. This is effectively a tax on poor planning. Using a revocable trust to hold your real estate and accounts avoids this fee. We also need to look at real estate transfer taxes. Moving property into a trust must be done correctly to avoid uncapping the taxable value. Michigan law provides specific exemptions for these transfers when handled properly.

The lack of a state death tax does not mean Michigan ignores your estate. The Michigan Trust Code provides the rules for how your trust operates. We must ensure your documents comply with local statutes. Out-of-state forms or generic online templates often fail to reference specific Michigan powers. This can leave your trustee unable to act effectively during administration. Local knowledge is essential for a smooth settlement process.

Trust Strategies That Remain Valuable

The Credit Shelter Trust (or A/B Trust) structure is still a staple of estate planning. We used to rely on it primarily to double the exemption for married couples. With a $30 million joint exemption, portability might seem sufficient. However, Credit Shelter Trusts offer more than just tax savings. They lock in the exemption of the first spouse to die. They also protect the assets from the surviving spouse's future creditors or a new spouse.

Dynasty Trusts remain very relevant. You can leave assets in trust for multiple generations. Michigan law allows these trusts to last for a very long time. This keeps the assets out of your grandchildren's and great-grandchildren's taxable estates. The trust creates a family bank that can fund education or business ventures. The high exemption allows you to seed these trusts with significant capital. The compounding growth over decades can be substantial.

Grantor Retained Annuity Trusts (GRATs) and Qualified Personal Residence Trusts (QPRTs) still have a place. They are excellent for moving appreciation out of your estate. Even with a $15 million exemption, a successful business owner can outgrow the limit quickly. These freeze techniques stop your taxable estate from growing beyond the protected amount. We can structure them to use little or no exemption. They act as an insurance policy against future explosive growth in your asset base.

Action Steps: Review Your Estate Plan Now

Review your current documents as soon as possible. Many older trusts contain mandatory funding formulas tied to the tax exemption. A formula that mandates funding a trust with the "maximum exempt amount" could accidentally disinherit your spouse. If you have $15 million, that entire amount might go into a trust that your spouse cannot easily access. We need to adjust these formulas to ensure your spouse has adequate liquidity. Flexibility is the new priority.

Check your beneficiary designations on retirement accounts and life insurance. These assets pass outside your will or trust. They must align with your overall plan. Naming a minor child as a direct beneficiary is a recipe for trouble. The court will appoint a conservator to manage the money. Naming your trust is often the better option, but it requires specific tax language. The SECURE Act changed the rules for IRA distributions, and your trust must be drafted carefully to avoid accelerating income taxes.

Schedule a consultation to discuss the OBBBA's impact on your specific situation. We need to look at your balance sheet with the new $15 million figure in mind. You might have opportunities to simplify your plan. We can remove complex tax provisions that no longer serve a purpose. This makes administration easier for your family. Peace of mind comes from knowing your plan works under the current law. Do not let inertia put your legacy at risk.