How OBBBA Changes Estate Planning

Shelia received a call last week, distraught. Her husband, Mark, had meticulously planned his estate for years, believing his assets were protected from federal estate tax. He’d even drafted a codicil to his trust, updating beneficiary designations. But the original trust, executed in 2015, contained a “sunset clause,” anticipating the 2026 reversion to a much lower federal estate tax exemption. Now, with the OBBBA permanently removing that sunset, Shelia is unsure if her existing plan still reflects his wishes – and whether the codicil, dated before OBBBA passed, is even relevant. The potential cost of inaction? A significant, unexpected tax liability.

The enactment of the One Big Beautiful Bill Act (OBBBA) has fundamentally altered the landscape of estate planning, though perhaps not in the dramatic, disruptive way many feared. For years, estate planning attorneys braced for a steep decline in the federal estate tax exemption on January 1, 2026, reverting from the then-current $13.61 million (per individual, for 2024) to approximately $6.2 million (adjusted for inflation). OBBBA effectively eliminated that impending “sunset,” permanently establishing the federal estate tax exemption at $15 million per person ($30 million for couples) effective Jan 1, 2026. This removes a considerable degree of uncertainty, allowing for more stable, long-term planning. However, it doesn’t mean estate planning is now unnecessary – far from it.

Does OBBBA Mean I No Longer Need Estate Planning?

Absolutely not. While the exemption amount is significantly higher and now permanent, a well-structured estate plan addresses far more than just federal estate taxes. Issues like incapacity planning, asset titling, beneficiary designations, and distribution strategies remain crucial, regardless of the exemption level. Furthermore, while the federal estate tax may not be a concern for many, California, like several other states, has its own state estate or inheritance tax, which operates independently. Ignoring those state-level considerations would be a critical error.

How Does OBBBA Impact Existing Estate Plans?

For those who already have estate plans in place, the primary impact of OBBBA is a reassessment of whether existing strategies still align with their goals. Plans built around minimizing estate tax liability under the lower exemption may now be overly conservative. This is precisely Shelia’s predicament – her husband’s codicil, designed to shield assets from a nonexistent tax, may now unnecessarily restrict her options. A review is essential to ensure the plan reflects current tax laws and the client’s evolving wishes. We frequently encounter clients with outdated plans containing provisions that, while sensible a decade ago, are now counterproductive or even detrimental.

What About Proposition 19 and California Property Taxes?

Even with the higher federal exemption, California’s Proposition 19 continues to be a significant planning consideration. Under Proposition 19, heirs only keep a parent’s low property tax base if they move into the home as their primary residence within one year. Critically, for 2026, the tax-free ‘basis boost’ is capped at $1,044,586 over the original taxable value; any value exceeding this adjusted cap results in a partial reassessment even if the child moves in. This means that even with a robust federal estate plan, the potential for increased property taxes remains a pressing concern for California residents. Careful planning, perhaps involving gifting strategies or the use of trusts, is often necessary to mitigate this risk.

How Does My Role as a CPA Enhance Estate Planning?

As an attorney and CPA with over 35 years of experience, I bring a unique perspective to estate planning. Many attorneys lack the financial expertise to fully appreciate the tax implications of various planning strategies. My understanding of step-up in basis, capital gains tax, and asset valuation allows me to craft plans that minimize not only estate taxes but also income taxes for your heirs. For example, proper valuation of illiquid assets, like closely held businesses, is crucial to avoid IRS scrutiny and potential penalties. A CPA-attorney can anticipate these issues and proactively address them.

What About Digital Assets and Access Concerns?

Don’t forget the increasing importance of digital asset planning. Per the Revised Uniform Fiduciary Access to Digital Assets Act (RUFADAA), custodians like Apple or Google are legally prohibited from granting executors access to the content of emails or private messages without ‘explicit written direction’ in the will or trust. Metadata (the ‘catalog’) may be accessible, but the private content remains locked without this specific legal trigger. Failing to address this can leave your executor unable to locate or manage crucial digital assets, potentially leading to significant financial loss or legal disputes.

What About Business Owners and the Corporate Transparency Act?

For business owners, the Corporate Transparency Act (CTA) adds another layer of complexity. Under the Corporate Transparency Act (CTA), all non-exempt small businesses must maintain active BOI Reports with FinCEN. Upon the death of a member, the estate or successor has exactly 30 days from the date the estate is settled to file an updated report; failure to meet this window triggers non-waivable fines of $500 per day. This reporting requirement often gets overlooked in estate planning, but it’s a critical compliance issue that can create significant financial penalties for the estate.

OBBBA provides a degree of stability, but estate planning is a dynamic process. A comprehensive plan, regularly reviewed and updated, remains essential to protect your assets, provide for your loved ones, and achieve your long-term financial goals.

How do California courts decide whether a will reflects true intent or creates ambiguity?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

To create a valid document, you must ensure the signer has legal capacity, strictly follow California will rules, and ensure you are correctly identifying the will maker to prevent identity disputes.

When a will is drafted with California probate review in mind, it becomes a stabilizing roadmap rather than a source of conflict. Clear intent, proper authority, and compliant execution protect both families and estates.

Controlling Legal Standards Governing California Estate and Asset Transfers

• Probate & Court Procedure:
  California Courts – Wills, Estates, and Probate
  The official judicial branch guide for navigating the probate process; it provides updated 2026 checklists for determining if an estate qualifies for “Summary Probate” under the $208,850 personal property limit or the $750,000 primary residence threshold (AB 2016).
• Property Tax Reassessment (Prop 19):
  California State Board of Equalization (Prop 19)
  The definitive resource for understanding the “Parent-to-Child” reassessment exclusion; it outlines the strict one-year deadline for heirs to move into an inherited home as their primary residence to maintain the parent’s low property tax base.
• Advance Healthcare Planning:
  California Attorney General – Advance Health Care Directive
  Provides the official California statutory form and legal guidelines for appointing a health care agent; this resource emphasizes the necessity of combining a medical power of attorney with a HIPAA release to ensure doctors can communicate with family during an emergency.
• Federal Estate & Gift Tax:
  IRS Estate Tax Guidelines
  The authoritative federal portal for estate and gift tax reporting; this page reflects the permanent exemption of $15 million per person (effective Jan 1, 2026), effectively replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.
• Digital Asset Access (RUFADAA):
  California RUFADAA Law (Probate Code §§ 870-884)
  Access the full statutory text of the Revised Uniform Fiduciary Access to Digital Assets Act; it explains why executors are legally barred from accessing encrypted accounts, email, or crypto-wallets unless the decedent provided explicit “prior consent” in their estate plan.