The federal estate tax exemption is higher than ever, but that does not necessarily mean your estate strategy is complete.
When the One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, it permanently increased the federal estate and gift tax exemption to $15 million per individual and $30 million per married couple, with annual inflation adjustments going forward. For many families, this removed the uncertainty surrounding the scheduled reduction in the exemption that estate planning professionals had anticipated for years.
At first glance, this sounds like good news. In many cases, it is.
However, the federal estate tax exemption is only one piece of a comprehensive estate strategy. State estate taxes, inheritance taxes, outdated trust documents, beneficiary designations, and multistate property ownership can all create unexpected complications, regardless of whether your estate approaches the federal exemption.
For many families, the question is no longer, “Will I owe federal estate tax?” Instead, it is:
- Does my estate strategy still reflect current law?
- Will my assets transfer according to my wishes?
- Could my family face unnecessary taxes or administrative challenges?
- Have my estate documents kept pace with changes in my life?
These questions matter regardless of wealth level and are an important part of maintaining an effective estate strategy.
Summer often provides an ideal opportunity to review your estate strategy and estate planning documents. Families are together, schedules are slightly less hectic, and important conversations tend to happen more naturally. Reviewing your estate strategy before a major life event occurs can help ensure your wishes remain aligned with current law while providing clarity and confidence for everyone involved.
Why Your Estate Strategy Still Matters
The new federal estate tax exemption of $15 million per person means very few families will ever owe federal estate tax.
According to recent estimates, fewer than 0.1% of estates ultimately pay federal estate tax.
For many households, this is welcome news.
However, avoiding federal estate tax does not automatically mean your estate strategy is current or complete. Estate planning extends well beyond taxes. It determines how your assets transfer, who manages your affairs if you become incapacitated, who carries out your wishes, and how efficiently your family can navigate the process after your death.
Even if federal estate taxes are unlikely to affect your family, several situations still deserve careful attention.
How State Estate Taxes Affect Your Estate Strategy
One of the most commonly overlooked aspects of estate planning is that state laws operate independently of federal law.
While the OBBBA significantly increased the federal exemption, it did not eliminate or modify estate taxes imposed by individual states.
Today, twelve states and the District of Columbia continue to levy their own estate tax, often using exemption amounts that are dramatically lower than the federal threshold.
For example:
- Oregon’s exemption remains $1 million.
- Massachusetts currently exempts only $2 million.
- Several states continue to adjust their own estate tax rules independently of federal legislation.
As a result, families who would never owe federal estate tax may still owe state estate tax.
Imagine a family with:
- A paid-off home
- Retirement accounts
- Investment assets
- Life insurance
- A small business or family property
They may not consider themselves extraordinarily wealthy, yet their estate could exceed their state’s exemption.
Estate Tax vs. Inheritance Tax in Your Estate Strategy
Although the terms are frequently used interchangeably, estate tax and inheritance tax are two very different concepts.
Estate Tax
An estate tax is paid by the estate before assets are distributed to beneficiaries.
The calculation is based on the total value of everything owned by the deceased, including:
- Real estate
- Investment accounts
- Retirement accounts
- Business interests
- Personal property
- Certain life insurance proceeds
If the estate exceeds the applicable exemption, taxes are generally paid before heirs receive their inheritance.
Inheritance Tax
An inheritance tax is paid by the individual receiving the assets.
The amount owed depends on:
- The state where the assets are located
- The relationship between the beneficiary and the deceased
- The value of the inheritance
Many spouses and children receive favorable treatment, while more distant relatives or unrelated beneficiaries may owe substantially more.
Maryland remains the only state that currently imposes both an estate tax and an inheritance tax.
Understanding which tax applies—and where—is an important part of an effective estate strategy.
New York’s Estate Tax Cliff
Some states introduce additional complexity.
New York’s estate tax system includes what is commonly known as the estate tax cliff.
Once an estate exceeds approximately 105% of the state’s exemption amount, the exemption is effectively lost, meaning the taxable estate can increase dramatically rather than only taxing the amount above the threshold.
For families with significant real estate, investment portfolios, or closely held businesses, this rule can produce a substantial state estate tax even when no federal estate tax is owed.
Because state laws vary considerably, reviewing your estate strategy with professionals familiar with your state’s rules can help identify planning opportunities that generic guidance often overlooks.
Why State Estate Tax Rules Deserve a Review
Federal tax law receives the headlines, but state estate planning rules often determine whether families encounter unexpected taxes, probate complications, or unnecessary administrative burdens.
If you have not reviewed your estate documents in several years, or if you have relocated, inherited property, purchased a vacation home, or experienced significant life changes, now may be an appropriate time to revisit your strategy.
For many families, a thoughtful estate review is less about preparing for taxes and more about ensuring their wishes remain accurately reflected in today’s legal and financial environment.
Frequently Asked Questions
Does the new tax law mean I no longer need an estate strategy?
No. The higher federal estate tax exemption means fewer families will owe federal estate tax, but an estate strategy is about much more than taxes. It helps determine who inherits your assets, who manages your affairs if you become incapacitated, who makes healthcare decisions on your behalf, and how efficiently your estate is administered after your death.
What is the current federal estate tax exemption?
Under the One Big Beautiful Bill Act (OBBBA), the federal estate and gift tax exemption is $15 million per individual and $30 million per married couple, with annual inflation adjustments. Most families will not owe federal estate tax, but state estate or inheritance taxes may still apply depending on where you live or own property.
Should I update my estate plan after the new tax law?
Possibly. Even if you are well below the federal exemption, many estate plans were drafted under different tax laws and may no longer reflect current planning opportunities. Reviewing your documents can help ensure your wishes, beneficiaries, trustees, and tax strategies still align with your goals.
Which states still have estate or inheritance taxes?
Several states continue to impose estate taxes, inheritance taxes, or both, even though the federal exemption has increased. Because state laws differ significantly and change over time, it is important to review your estate strategy with professionals who understand the rules that apply to your situation.
What is the difference between an estate tax and an inheritance tax?
An estate tax is paid by the estate before assets are distributed to beneficiaries. An inheritance tax is paid by the person receiving the assets. Depending on the state, your relationship to the deceased and the value of the inheritance may determine whether inheritance tax is owed.
Does owning property in another state affect my estate strategy?
Yes. Vacation homes, rental properties, farmland, and other real estate located outside your home state may be subject to that state’s estate or inheritance tax laws. Multistate property ownership is an important reason to review your estate strategy periodically.
What estate planning documents should I review?
An estate strategy should include more than a will or trust. Consider reviewing:
- Beneficiary designations
- Revocable or irrevocable trusts
- Powers of attorney
- Healthcare directives
- Executor and trustee appointments
- Asset ownership and titling
Keeping these documents current can help ensure your wishes are carried out efficiently.
How often should I review my estate strategy?
Many professionals recommend reviewing your estate strategy every three to five years or after a significant life event, such as marriage, divorce, the birth of a child or grandchild, retirement, the purchase of property, or a major change in tax law.
What does a financial advisor do during an estate strategy review?
While estate planning documents should be drafted by a qualified estate planning attorney, a financial advisor helps coordinate the overall strategy. This may include reviewing beneficiary designations, identifying outdated planning opportunities, evaluating asset titling, coordinating with legal and tax professionals, and helping ensure your financial plan aligns with your estate goals.
Who should consider reviewing their estate strategy now?
An estate strategy review may be worthwhile if you:
- Have not updated your estate documents in several years.
- Own property in more than one state.
- Have experienced a major life event.
- Have a trust created under older tax laws.
- Want to help reduce potential taxes or administrative burdens for your heirs.
Even families far below the federal estate tax exemption can benefit from reviewing their estate planning documents periodically.
Sources
1. Forbes, July 3, 2025
https://www.forbes.com/sites/matthewerskine/2025/07/03/estate-planning-and-the-final-obbba-key-changes-high-net-worth-individuals-must-know/
2. Center on Budget and Policy Priorities, December 19, 2025
https://www.cbpp.org/research/federal-tax/the-federal-estate-tax
3. Tax Foundation, October 28, 2025
https://taxfoundation.org/data/all/state/estate-inheritance-taxes/
4. AARP, March 31, 2026
https://www.aarp.org/money/retirement/states-with-estate-inheritance-taxes/?msockid=37914d74d918692c38995a5cd8f4687f
5. Commerce Trust, August 30, 2024
https://www.commercetrustcompany.com/research-and-insights/articles/understanding-credit-shelter-trusts-versus-portability
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