The Tax Cuts and Jobs Act (TCJA), which was signed into law by President Trump in 2018, increased the federal estate and gift tax (FEGT) exemption amount from $5 million to $11 million per person, indexed for inflation. Fast-forward to 2025: The exemption was raised to $13.99 million per person (up from $13.61 million in 2024). The TCJA was scheduled to “sunset” on December 31, 2025, so that on January 1, 2026, the exemption would drop to approximately $7 million per person. Yet, with the advent of Trump’s second presidency, affluent New Yorkers have been holding their breath to see whether this sunset date would be extended. The One Big Beautiful Bill, enacted in July 2025 (OBBA), made the increased exemption amount permanent.
For the year 2025, over the course of one’s life and upon one’s death, an individual can transfer up to $13.99 million of assets to others tax-free ($27.98 million for married couples). Beginning in 2026, this amount will permanently increase to $15 million for an individual ($30 million for married couples). OBBA also renews the TCJA’s portability provisions, meaning that any unused exemption of the first spouse to die can be added to the existing exemption amount of the surviving spouse as long as the surviving spouse files an estate tax return for the deceased spouse within five years of death. Under OBBA, the personal gift tax exclusion amount of $19,000 (indexed for inflation annually) remains unchanged. As a result, an individual can gift up to approximately $19,000 per person each year ($38,000 for married couples) without cutting into their $15 million FEGT exemption amount. The FEGT rate of 40% also remains intact.
Although OBBA may seem like the ultimate salvation for the wealthy, New Yorkers should not forget that our State has its own estate tax, with an exemption amount of $7.16 million per person. Unlike the FEGT exemption, New York does not offer portability between spouses. To maximize the $7.16 million exemption amount, spouses must divide their assets between them (such that each spouse has up to $7.16 million in their name alone on the date of death of the first spouse to die) in order to avoid losing the exemption of the first-to-die spouse. Furthermore, New York has an “estate tax cliff,” whereby if, on the date of your death, your estate is more than 5% over the exemption amount (i.e., $7,518,000 for 2025) and you do not have your estate going to your spouse, you fall off the cliff—it is not just the overage, but the entire estate, that is taxed on a sliding scale up to 16%.
OBBA’s permanent increase of the FEGT exemption brings great relief to those with large estates from a federal perspective. However, only with advance planning can one reduce or potentially eliminate the New York estate tax, to ensure that their hard-earned millions goes to their loved ones rather than New York State.
