The recent passage of the OBBBA Legislation in July introduced significant changes affecting estate planning, trust administration, and probate. While these adjustments may have caused uncertainty among many individuals and families, understanding their impact offers an excellent opportunity to strategically enhance your estate planning. At Pederson Law Offices, we are here to guide you through these changes and ensure your financial and legacy plans remain secure and effective.

 

Increased Estate and Gift Tax Exemption

Beginning January 1, 2026, the estate and gift tax exemption will substantially increase to $15 million per individual ($30 million for married couples). Notably, this exemption is now permanent unless changed by future legislative action, offering significant clarity compared to prior law, which was set to revert to approximately $7 million per individual in 2026. Additionally, these exemptions will now receive annual adjustments for inflation, providing more predictability and stability for long-term estate planning.

 

Medicaid Reforms and Long-Term Care Implications

One of the most substantial components of the OBBBA includes a $1 trillion reduction in Medicaid funding, coupled with new work or volunteer requirements and tighter eligibility criteria. These changes may complicate qualification for Medicaid-funded long-term care. Given this evolving landscape, it’s crucial to revisit your long-term care strategies, potentially incorporating private insurance solutions to safeguard against future costs. For California residents, it's important to remember that Medi-Cal is California’s version of Medicaid.

 

Federal Estate Tax Impact

Under the new legislation, federal estate taxes will apply to only approximately 0.25% of all estates. While this significantly reduces federal tax exposure for most, it’s essential to remain aware of potential state-level estate tax liabilities. Although California has no state-level estate tax, assessing your jurisdiction-specific obligations remains a critical component of comprehensive estate planning if you own real property in another state or intend to relocate to a new state in the future.

 

Social Security Tax Adjustments

The OBBBA introduces a temporary new deduction of up to $6,000 for individuals ($12,000 for married couples over age 65), potentially increasing the number of seniors who receive tax-free Social Security benefits. However, this beneficial provision is set to expire in 2028 unless renewed, highlighting the importance of periodically reviewing your financial strategies with trusted advisors.

 

Medicare Budget and Cost Considerations

Implementation of critical Medicare cost-sharing assistance regulations has been delayed until 2034 due to potential budget cuts totaling approximately $490 billion. These reductions may result in higher out-of-pocket medical expenses and reduced provider availability if mandatory spending cuts (PAYGO) take effect. Proactively addressing your financial and healthcare plans is essential to navigating these potential challenges effectively.

 

Continuity in Other Tax Structures

Apart from the increased exemption amounts, the fundamental structure of estate, gift, and generation-skipping transfer (GST) taxes remains unchanged. The existing framework from the 2017 Tax Cuts and Jobs Act continues, providing consistency and reliability for ongoing estate planning strategies.

 

Taking Action: Strategic Estate Planning

While the OBBBA introduces complexity, it also presents valuable opportunities for proactive estate planning. Now is the ideal moment to review your estate documents, assess your long-term care preparedness, and refine your tax strategies. At Pederson Law Offices, we craft tailored estate planning solutions that reflect your unique family structure and financial goals. However, to ensure your plan works when it matters most, it must evolve alongside changes in your life, finances, or the law. If it’s time for a review, contact our office today.

 

Please note: This blog post is for informational purposes only and does not constitute legal advice or create an attorney-client relationship. Consult with a qualified attorney at Pederson Law Offices for advice on your specific circumstances.