Does the OBBBA increase the federal estate tax exemption to fifteen million

I recently had a client, David, come to me in a state of panic. He’d meticulously drafted his estate plan years ago, including a substantial charitable bequest through a Charitable Remainder Trust. However, a family dispute arose, and he attempted to modify the trust via a codicil – handwritten, witnessed, and seemingly valid. Except it wasn’t. A critical misstep in the execution, a single missed signature requirement, rendered the codicil unenforceable. The result? A significant portion of his intended charitable donation was lost, diverted to unintended heirs, and his family was left battling over legal fees. This scenario, unfortunately, is far more common than people realize, and highlights the absolute necessity of precision and regular review in estate planning.

What is the current status of the federal estate tax exemption?

For years, the looming “sunset” of the Tax Cuts and Jobs Act of 2017 created considerable anxiety. The Act doubled the federal estate tax exemption, but that increase was set to expire on December 31, 2025. This would have reverted the exemption back to roughly $6.2 million per individual – a substantial drop that could have triggered significant estate tax liabilities for many high-net-worth individuals. However, the enactment of the OBBBA – the 2026 Tax Relief Act – provided much-needed clarity and stability.

The OBBBA, thankfully, averted the sunset. Effective January 1, 2026, the federal estate tax exemption will remain at $15 million per person, adjusted annually for inflation. This is a critical point for clients with substantial estates. It allows them to continue utilizing sophisticated estate planning tools like charitable trusts without the immediate threat of triggering crippling tax burdens.

How can charitable trusts help with estate tax planning?

For clients like David, who are charitably inclined and possess significant wealth, charitable trusts offer a powerful strategy to minimize estate tax liability and achieve their philanthropic goals. Specifically, utilizing these trusts can help manage assets exceeding the $15 million exemption.

There are two primary types of charitable trusts to consider: Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs). CRTs pay income to the donor or their heirs for a set term, with the remainder going to charity. They’re particularly effective for bypassing capital gains tax on appreciated assets like stock or real estate. CLTs, on the other hand, provide immediate income to the charity, preserving the remaining assets for heirs at a future date. The choice depends on the client’s specific income needs and estate planning objectives.

What are the rules surrounding real estate gifts to charity?

A common question I receive is regarding the transfer of real estate to a charity. Clients often inquire if they can bypass probate using simplified procedures. While the Small Estate Affidavit can be used for real property valued under $69,625, a more significant gift requires a different approach. For deaths on or after April 1, 2025, a residence valued up to $750,000 gifted to a charity can qualify for a “Petition for Succession” under AB 2016 (Probate Code § 13151).

It’s crucial to understand that this is a Petition – it requires a Judge’s Order. Furthermore, the decedent’s other non-real estate assets must remain below the $208,850 threshold for this specific succession path. If those assets exceed that amount, a full probate proceeding may still be necessary.

What happens if the chosen charity ceases to exist?

I always advise clients to consider the possibility that a named charity might no longer be operating when the trust distributes funds. In such cases, California courts apply the Cy Pres Doctrine to redirect assets to a comparable charitable cause. However, this is only possible if the trust doesn’t specify a successor charity. It’s vital to include contingency plans in the trust document to ensure the client’s charitable intent is fulfilled, even if circumstances change.

What about digital assets and access for the trustee?

Increasingly, charitable bequests include digital assets – online accounts, cryptocurrency, etc. Without specific RUFADAA language (Probate Code § 870) in the Charitable Trust, service providers can legally block a trustee from accessing these accounts, potentially frustrating the donor’s wishes. We routinely include comprehensive RUFADAA provisions in our charitable trust documents to avoid this issue.

As an Estate Planning Attorney and CPA with over 35 years of experience, I’ve seen firsthand how crucial it is to proactively address these complexities. My CPA background provides a unique advantage – understanding the tax implications, including the step-up in basis for charitable donations, the potential capital gains exposure, and accurate asset valuation – is vital to maximizing benefits for my clients and their chosen charities.

What determines whether a California trust settlement remains private or erupts into public litigation?

California trusts are designed to bypass probate and maintain privacy, yet they often fail when assets are not properly funded, trustee duties are ignored, or ambiguous terms trigger disputes. Even with a signed trust document, families can face court battles if the “operations manual” of the trust isn’t followed strictly under the Probate Code.

To prevent family friction during administration, trustees must adhere to the rules in administering a California trust, while beneficiaries should monitor actions to prevent the issues highlighted in trustee errors, ensuring the trust document is enforced correctly.

A stable trust administration relies on the trustee’s ability to balance investment duties, beneficiary communication, and tax compliance. When these elements are managed proactively, families can avoid the emotional and financial drain of litigation.

Verified Authority on California Charitable Trust Administration

• Business Interest Compliance (FinCEN): FinCEN – Beneficial Ownership Information (BOI)
  The Corporate Transparency Act remains in full effect. Trustees managing LLCs (domestic or foreign) within a charitable structure must file a Beneficial Ownership Information (BOI) report. Failure to update control information within 30 days of a change can result in federal civil penalties of $500/day.
• Charitable Trust Formation: California Probate Code § 15200 (Creation of Trust)
  This statute governs the legal creation of fiduciary relationships for charitable purposes. It enables donors to support causes—such as education or scientific research—that align with their values through structured giving, ensuring precision and continuity that casual donations lack.
• Digital Asset Access (RUFADAA): California Probate Code § 870 (RUFADAA)
  Without specific RUFADAA language (Probate Code § 870) in your Charitable Trust or Will, service providers like Coinbase and Google can legally deny your trustee access to digital assets, potentially stalling the funding of charitable causes.
• Federal Estate Tax Exemption: IRS Estate Tax Guidelines
  Reflects the permanent increase to a $15 million per person exemption (effective Jan 1, 2026). This shifts the planning focus for most Californians from tax avoidance to asset protection, but for ultra-high-net-worth estates, charitable trusts remain a primary tool to shield assets above this cap.
• Primary Residence Succession (AB 2016): California Probate Code § 13151 (Petition for Succession)
  When transferring property to a charity, you must distinguish between the Small Estate Affidavit (real property <$69,625) and AB 2016. For deaths on or after April 1, 2025, a residence up to $750,000 qualifies for a ‘Petition for Succession’. This is a “Petition” that requires a Judge’s Order, NOT an “Affidavit.” Note that other assets must remain below the $208,850 limit.
• Charitable Tax Exemption (Welfare Exemption): BOE Welfare Exemption (Form 277)
  Unlike transfers to children (Prop 19), transferring real estate to a Charitable Trust triggers reassessment unless the property qualifies for the Welfare Exemption. The trustee must file a claim to prove the property is used exclusively for charitable purposes.
• Registry of Charitable Trusts: California Attorney General – Registry of Charitable Trusts
  Trustees of charitable trusts must comply with annual reporting obligations under California Government Code § 12585. This resource serves as the oversight portal to ensure proper use of assets and to avoid self-dealing or deviation from the donor’s original intent.
• Small Estate Threshold (Bank Accounts/Cash): California Probate Code § 13100 (Personal Property)
  If combined “probate assets” (excluding the AB 2016 residence) exceed $208,850 (as of April 1, 2025), they are subject to formal probate; a Will alone does not allow you to bypass this limit for the purpose of funding a Charitable Trust.