Recent legislation — the One Big Beautiful Bill Act (OBBBA)—abolished the 2026 “tax cliff” by making the estate and gift tax exemption permanent at $15 million per individual (or $30 million per couple), with inflation indexing. The long-standing concern that the exemption would revert to roughly $7 million in 2026 has now been eliminated.
For business owners, this provides welcome stability. Planning no longer needs to be rushed under the pressure of a looming deadline. Instead, owners can take a measured approach, using the higher exemption as a foundation for long-term strategies.
Why Business Owners Still Need to Plan Carefully
While the exemption is now higher, estates above $15 million remain exposed to a 40 percent federal estate tax. Successful entrepreneurs often cross that threshold once business assets, real estate, and investments are included. Additionally, state-level estate taxes can still apply. States such as New York have much lower exemptions and “cliff” provisions that can trigger taxation even when the federal exemption covers the estate.
Finally, political risk cannot be ignored. Although the exemption is now permanent, future administrations could revisit estate tax rules. Owners who plan ahead will be better protected regardless of changes.
Planning Strategies for Business Owners
Leverage the Increased Federal Exemption
Irrevocable trusts — such as GRATs, dynasty trusts, or Spousal Lifetime Access Trusts — remain valuable. They allow business owners to transfer assets out of the estate, while preserving control or access to income.
Lifetime Gifting Remains Powerful
Using some of the exemption during life can reduce future estate taxes, especially for rapidly appreciating business assets. Gifts of business interests to heirs or trusts can lock in today’s valuations and shelter future growth.
Pay Attention to State-Level Taxes
State exemptions vary widely. Even if a business owner is protected federally, they may still face significant state estate taxes. Coordinating state and federal planning ensures the business is not unexpectedly taxed or forced to sell assets.
Provide Liquidity with Insurance
When most of the estate is tied up in the business, heirs may lack cash to pay estate taxes. Life insurance or properly structured buy-sell agreements can provide liquidity, preventing a forced sale.
Integrate Succession and Estate Planning
Estate planning and succession planning are two sides of the same coin. Coordinating the transfer of ownership with tax strategies ensures that both the family’s financial goals and the business’s operational needs are met.
When to Act Versus When to Refine
- Owners with estates below $15 million can use this stability to refine their plans, ensuring long-term protection.
- Owners with estates above $15 million still need to act, making use of trusts, gifting, or insurance to minimize exposure.
- The certainty of a permanent exemption makes this a moment to plan strategically rather than react hastily.
.png?width=48&height=48&name=KVP-background1%20(2).png){kind=small}
