How The One Big Beautiful Bill Act (OBBBA) Transforms Maryland Estate Planning

Here’s how OBBBA affects estate planning:

1. Increased exemption amounts

Estate and Gift Tax Exemption: Beginning January 1, 2026, the federal lifetime exemption is increased to $15 million per individual (or $30 million for married couples). This eliminates the previously scheduled sunset of these higher exemptions at the end of 2025, which would have halved the exemption amounts.

Generation-Skipping Transfer (GST) Tax Exemption: The OBBBA also permanently increases the GST exemption to $15 million per person (the same as the estate and gift tax exemption), indexed for inflation.

2. Planning opportunities and considerations

Wealth Transfer: The increased exemption allows individuals to transfer significantly more wealth to future generations free of federal estate and gift taxes.

Gifting Strategies: While the annual gifting exclusion remains unchanged, the larger lifetime exemption provides more room for significant wealth transfers through gifts without incurring gift tax liability.

Reviewing Existing Plans: It’s crucial for individuals and families to review their current estate plans, including wills and trusts, with their estate planning attorney and tax advisor to ensure their plans align with the new exemption amounts and to explore potential planning opportunities, such as utilizing the full exemption amounts, according to Bankers Trust.

Potential for Future Changes: Although the OBBBA makes these higher exemptions permanent, Congress retains the ability to alter or reduce these amounts in the future, making proactive and regular review of estate plans essential, says Bailey Cavalieri.

3. Interaction with SECURE Act and SECURE Act 2.0

SECURE Act Impact: The SECURE Act (Setting Every Community Up for Retirement Enhancement), enacted in 2019, significantly changed the rules for distributions from inherited retirement accounts, such as IRAs and 401(k)s.

Stretch IRA Elimination: The SECURE Act largely eliminated the “stretch IRA” strategy, which allowed beneficiaries to spread distributions over their lifetime, deferring taxes.

10-Year Rule: Most non-spouse beneficiaries are now required to withdraw the entire balance of an inherited retirement account within 10 years of the original account owner’s death.

Exceptions to the 10-Year Rule: Surviving spouses, minor children, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the account owner may still be able to stretch distributions or take advantage of other exceptions.

SECURE Act 2.0: Passed in late 2022, SECURE Act 2.0 further refined and clarified aspects of retirement and estate planning, including:

Increased RMD Age: The age at which Required Minimum Distributions (RMDs) must begin has been increased in phases, with a target of age 75 by 2033.

Roth 401(k) and 403(b) RMD Exemption: Roth 401(k)s and 403(b)s are no longer subject to RMDs during the account holder’s lifetime, similar to Roth IRAs, beginning in 2024.

529 Plan to Roth IRA Rollovers: SECURE Act 2.0 permits rollovers of 529 plan funds to Roth IRAs under certain limited circumstances, beginning in 2024.

Penalties for Missing RMDs: The penalty for failing to take a timely RMD was reduced from 50% to 25%, and can be further reduced to 10% in some cases.