Build Back Better Estate Tax Exemption vs. Current Law

The Build Back Better Act would have cut the federal estate tax exemption roughly in half, dropping it from over $11 million per person to approximately $6 million as early as January 1, 2022. None of it became law. The bill stalled in the Senate in late 2021, its successor legislation dropped every estate tax reform, and Congress moved in the opposite direction: the One Big Beautiful Bill Act, signed on July 4, 2025, raised the individual exemption to $15 million for 2026 and made the increase permanent.1Internal Revenue Service. What’s New – Estate and Gift Tax

What the Bill Proposed for the Exemption

The Tax Cuts and Jobs Act of 2017 doubled the base exclusion amount for estate and gift taxes, pushing the individual exemption from roughly $5.5 million to over $11 million (indexed for inflation each year).2Internal Revenue Service. Estate and Gift Tax FAQs That doubling was always temporary, scheduled to expire after 2025. The Build Back Better Act tried to accelerate the expiration by several years, dropping the exemption back to approximately $6 million on January 1, 2022.

The practical impact would have been enormous. A single person with a $12 million estate would have gone from owing zero federal estate tax to facing roughly $2.4 million in tax overnight, since the 40% top rate applies to every dollar above the exemption.3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Married couples who had structured their estates around the $24 million combined threshold would have seen that number cut in half. The proposal put pressure on wealthy families to make large gifts before the end of 2021 to lock in the higher exemption, since gifts made under the existing exclusion would have been protected by the IRS anti-clawback rule.4Internal Revenue Service. Making Large Gifts Now Won’t Harm Estates After 2025

Other Estate Provisions That Would Have Changed

The exemption cut was the headline, but the bill went further. Two other proposals targeted the most common planning techniques used by high-net-worth families.

Grantor Trust Overhaul

Grantor trusts are treated as belonging to their creator for income tax purposes, but the assets inside can be excluded from the creator’s taxable estate at death. That gap is what makes them valuable. The bill would have closed it by pulling grantor trust assets back into the taxable estate, treating sales between the creator and the trust as taxable events, and treating distributions to beneficiaries as gifts from the creator.5Congress.gov. Tax Changes for Estates and Trusts in the Build Back Better Act Existing arrangements would have been grandfathered to some degree, with only future contributions and transactions covered. The Intentionally Defective Grantor Trust, the workhorse of estate-freeze planning, would have lost most of its tax advantages.

Valuation Discounts

Families with large estates often hold investments inside entities like family limited partnerships, then claim discounts when valuing those interests for estate tax purposes. Because a minority interest in a private partnership isn’t marketable the way publicly traded stock is, appraisers reduce its value to reflect limited marketability and lack of control. These discounts routinely cut the taxable value of the underlying assets by 30% or more.

The bill would have added a provision eliminating these discounts for non-business assets held inside entities. Cash, publicly traded stocks, bonds, and real estate held purely for investment would have been valued at fair market value regardless of the legal structure holding them. Only assets used in an active trade or business would have retained the ability to claim valuation adjustments.

Why None of It Became Law

The Build Back Better Act passed the House in November 2021 but stalled in the Senate, where it lacked the votes to advance. The legislation that eventually emerged from those negotiations, the Inflation Reduction Act of 2022, focused on climate, energy, and health care. Every estate tax reform from the original bill was stripped out. The exemption reduction, the grantor trust overhaul, and the valuation discount restrictions all disappeared from the final text.

That outcome left the TCJA’s higher exemption intact through the end of 2025. For several years, estate planners operated under the assumption that the exemption would revert to roughly $7 million (inflation-adjusted) in 2026 when the TCJA provisions expired.2Internal Revenue Service. Estate and Gift Tax FAQs That reversion never happened.

Current Law Went the Other Direction

The One Big Beautiful Bill Act, signed on July 4, 2025, did the opposite of what the Build Back Better Act proposed. Instead of cutting the exemption, it raised the basic exclusion amount to $15 million per individual for 2026.1Internal Revenue Service. What’s New – Estate and Gift Tax A married couple using portability can shield up to $30 million from federal estate tax. The exemption begins adjusting for inflation starting in 2027.

Unlike the TCJA’s temporary doubling, this increase has no sunset date. The exemption stays at $15 million (plus future inflation adjustments) unless Congress passes new legislation to change it.6Internal Revenue Service. One Big Beautiful Bill Provisions The top federal estate tax rate remains 40%.3Office of the Law Revision Counsel. 26 USC 2001 – Imposition and Rate of Tax Neither the grantor trust rules nor the valuation discount rules were changed by the new law. The techniques the Build Back Better Act tried to eliminate remain fully available.

How the Exemption Has Moved

What This Means for Planning

The urgency that drove estate planning from 2022 through mid-2025, the assumption that a large exemption might be about to disappear, is gone. Families no longer need to rush gifts out the door before an expiration deadline.

Anyone who did make large gifts between 2018 and 2025 to lock in the higher TCJA exemption is protected regardless. The IRS finalized regulations confirming that estates will calculate their estate tax credit using whichever is higher: the exemption that applied when the gift was made, or the exemption at the date of death.4Internal Revenue Service. Making Large Gifts Now Won’t Harm Estates After 2025 With the 2026 exemption at $15 million, that protection now works in both directions. Earlier gifts made under the TCJA exemption remain shielded, and the higher exemption gives new room going forward.

One boundary worth keeping in mind: the federal exemption is not the whole picture. Roughly a dozen states and the District of Columbia impose their own estate taxes with much lower thresholds, some beginning as low as $1 million. A handful of states impose inheritance taxes based on who receives the assets, with rates ranging from 1% to 16% depending on the beneficiary’s relationship to the deceased. An estate that owes nothing to the IRS may still face a significant state bill depending on where the decedent lived. State estate taxes were untouched by both the Build Back Better debate and the 2025 legislation.