Key Estate Planning and Medicare Changes in the One Big Beautiful Bill

Congress has taken a major step toward reshaping the federal estate planning and Medicare landscape. The House and Senate have now passed the final draft of the widely discussed One Big Beautiful Bill (OBBB), which includes sweeping revisions relevant to high-net-worth individuals, families with aging loved ones, and anyone engaging in long-term planning.

Key Estate Planning and Medicare Provisions of the OBBB

Estate and Gift Tax Exemption Increased: The OBBB raises the federal estate and gift tax exemption. Effective 2026, the OBBB raises the gift estate and gift tax exemption to $15 million for individuals (up from $13.99 million) and $30 million for married couples filing jointly (up from $27.98 million). This increase from the current estate and gift tax exemption was previously raised by the Tax Cuts and Jobs Act (TCJA) that was signed in 2017 during President Trump’s first term. The increase in the estate and gift tax exemption under the TCJA was due to expire on January 1, 2026, but the OBBB increase is permanent.

Estate Planning Implications: If you are single with assets valued in excess of $15 million, or a married couple with assets valued in excess of $30 million, the increase helps—but may not eliminate estate taxes. If the value of your estate falls between $7 million and $15 million (or $14 million to $30 million for couples), the changes in the OBBB could mean you are no longer facing the federal estate tax burden you would have faced under prior law. Regardless of what the value of your estate currently is, you will still want strong estate planning strategies in place, like trusts and lifetime gifting, to reduce future taxes and protect your legacy.

For example, let’s say clients Alexander and Eliza Hamilton have a combined estate worth around $18 million. Under the TCJA, their estates may have owed a significant federal estate tax if both of them passed, more so if they had passed away after December 31, 2025. But under the OBBB’s new higher exemption, their estate might now pass to their children with little or no estate tax. Of course, avoiding taxes is only one part of a good estate plan. It’s also about making sure your assets go where you want them to, protecting your family, and preparing for life’s unexpected turns. However, the indefinite extension of the estate and gift tax increase allows planning to focus on the other goals.

Medicaid and Long-Term Care Changes: On the Medicaid front, the passing of OBBB includes cuts to Medicaid. With the goal of the bill to reduce government spending, states are expected to be more aggressive with their scrutiny of asset transfers and gifting to family members. For example, Section 71108 of the OBBB makes changes to the home equity limits that are used to determine eligibility for long-term care assistance. The new provisions establish different home equity thresholds for homes that are zoned for agricultural use and all other homes, but they also invite state scrutiny of home values.

States will be required to confirm enrollee eligibility of certain Medicaid programs every 6 months, commencing January 1, 2027. This will add extra administrative work for recipients, who must ensure all documents are correctly filed and all deadlines are met. The OBBB also calls for the Department of Health and Human Services to issue guidance related to implementing these changes within 180 days after the OBBB being signed.

Additionally, further restrictions were added to state reimbursements for medical assistance rendered to nonresidents and people who are not lawfully in the United States, with restrictions taking effect after September 30, 2025. States receive reimbursements from federal funds for expenditures incurred in providing medical assistance. However, after these restrictions take effect, states will not receive reimbursements for medical assistance that is provided to any patient that is (i) not a resident of the 50 states, the District of Columbia, or a territory of the United States, or (ii) is not (a) a citizen of the United States, (b) an alien who is lawfully admitted for permanent resident, (c) an alien granted the status of a Cuban or Haitian entrant (under applicable law), or (d) a lawfully admitted resident under the Compact of Free Association.

With funding of these programs being reduced and states being required to scrutinize assets and eligibility more thoroughly, people should reconsider reliance on availability of these programs in their long-term care and estate planning.

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Next Stop for OBBB

The One Big Beautiful Bill is now on the President’s desk. It’s widely expected that the bill will be signed into law on July 4, 2025.

How to Prepare for the OBBB

Tax and Estate Planning: With the increase in the tax exemption, there are new opportunities for transferring wealth without complex gifting strategies or trading taxes for asset protection. This means taxpayers could focus on strategies that minimize estate taxes and provide creditor protection immediately, rather than structuring the transfers over the course of a decade. However, clients should maximize the higher exemption increase in 2026, or soon thereafter, given a future Congress could modify the OBBB to eliminate or phase out the increased exemption. Due to the political sentiment about these tax cuts, we anticipate that a subsequent Congress will take this issue up and revert these changes, in part or in whole. This could be as soon as 2027 (following the 2026 midterm elections) or, more likely, 2029 (following the 2028 presidential election). If the estate and gift tax exemption is reduced after the exemption was claimed in a prior year, however, there is not a clawback—so putting a plan in place immediately may allow a significant wealth transfer without any change-of-law risk.

Business Succession Planning: While many of the changes will affect businesses and the economy differently, the increased estate and gift tax exemption will allow investors and small business owners to effectuate business succession plans quickly. While prior law would have required some additional planning for timing of ownership transfer, trusts were often the best vehicle for maintaining control while transferring ownership—transfer of S corporation shares has additional restrictions, but this can be done through a variety of trusts. Strategies for gifting shares in trusts was often effectuated over the course of several years, while simultaneously including transfer of managerial duties and some business restructuring. Now, it may be more advantageous to expedite the transfer of ownership and restructure the management of the business at a later date; certainly, the current management should be reviewed to ensure there will not be any changes due to equity transfers. However, if the management structure already preserves authority of the current owners and managers, passing managerial duties to the next generation could be structured over the course of the next decade without any concern about the tax consequences of the transition.

Long-Term Care Planning: The reduction in availability of public benefits and entitlements should be taken into account in planning. Those who have already put strategies in place that are designed to encourage Medicaid eligibility should be revisited; those who were considering Medicaid planning should revisit their strategies. While Medicaid planning has successfully allowed the transfer of wealth to younger generations and access to public benefits, it often requires removal of your access to the assets and wealth you have accumulated over your lifetime. Through the use of supplemental needs trusts, assets can also be used to provide a better quality of life while receiving public benefits. However, the state agencies administering these public benefits may have tighter budgets for the foreseeable future and may place larger burdens on the receipt of public benefits. Some states already pursue estate recovery aggressively (pursuing your estate to recover assets to offset the Medicaid benefits you incurred during your lifetime). Clients should review and possibly revise their trusts to be compliant with the new policies and consider long-term care options. Now, more than ever, it is critical to revisit your estate and long-term care plans.

Conclusion

We encourage clients to consult with a qualified trusts and estates attorney to ensure their estate plan and tax strategies maximize their ability to protect their wealth for future generations given these sweeping regulations. Acting now could make a substantial difference in preserving your wealth and protecting your future care options.

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