Estate planning should go beyond drafting a Will or storing documents in a folder. A well-designed plan safeguards assets, supports family members, and furthers charitable or personal objectives. For individuals with significant wealth, anticipating how federal and state estate tax rules apply is also a critical aspect of comprehensive estate planning. The One Big Beautiful Bill Act (OBBBA), passed in 2025, introduced major changes to federal estate and gift tax laws, creating both opportunities and new considerations. For Indiana residents, these changes must be viewed alongside state-specific rules. Toward that end, the Indianapolis attorneys at Frank & Kraft explain how OBBBA impacts estate planning in Indiana.
Federal Gift and Estate Tax Basics
The federal government imposes taxes on wealth transfers, both during life and at the time of your death. Before heirs or beneficiaries receive assets, the estate must settle any federal tax obligations. While Indiana does not impose an inheritance tax, residents remain subject to federal transfer tax laws and the state’s inheritance tax history still shapes planning discussions. At the federal level, the top estate and gift tax rate remains 40 percent. Without planning, this can significantly reduce what is passed on. For example, an Indiana resident who gifts $10 million during life and dies owning $20 million could face a tax bill on a $30 million estate at a 40 percent tax rate, amounting to a $12 million tax bill, if no exclusions apply.
The Lifetime Exemption Before OBBBA
The good news is that each taxpayer benefits from a lifetime exemption that shields a certain amount of assets from federal estate and gift tax. Before OBBBA, the exemption reached $13.99 million in 2025, or nearly $28 million for a married couple. This high exemption allowed individuals to make significant wealth transfers tax-free. Without it, the $30 million estate example would have resulted in a much higher tax. The previous law, however, scheduled the exemption to revert in 2026 to about $5 million per person, adjusted for inflation. This looming reduction prompted many families to accelerate gifting strategies before the deadline.
Key Provisions of OBBBA
OBBBA, enacted on July 4, 2025, permanently altered the transfer tax landscape. The law extended the higher exemption levels from the 2017 Tax Cuts and Jobs Act and reset the inflation adjustment base year. Beginning in 2026, the exemption rises to $15 million per person. For those who already used much of their exemption, this increase provides fresh planning opportunities for additional tax-free transfers.
Portability and Multi-Generational Planning
Portability remains intact under OBBBA. This means a surviving spouse can use the unused portion of a deceased spouse’s exemption. For example, if a spouse dies having used $5 million of their $13.99 million exemption in 2025, the remaining $8.99 million transfers to the survivor. With the 2026 increase, that survivor could shield almost $24 million from federal taxation. The Generation-Skipping Transfer (GST) exemption also matches the federal exclusion amount, enabling families to protect $15 million from GST tax. Since GST exemptions are not portable, however, strategic trust planning, such as dynasty trusts, remains essential for families aiming to preserve wealth across generations.
Federal Income Tax for Trusts
OBBBA also makes permanent the income tax brackets for individuals and trusts introduced under prior legislation. This stability helps trustees plan distributions and manage investments with more certainty about long-term tax implications.
Why Federal Planning Still Matters
Even with OBBBA’s favorable provisions, planning remains vital because Congress can change tax laws at any time. Families who want to lock in the benefits of the current $15 million exemption should consider strategies like Spousal Lifetime Access Trusts (SLATs), Grantor Retained Annuity Trusts (GRATs), and Irrevocable Life Insurance Trusts (ILITs). These tools allow wealth transfers while minimizing estate tax exposure and providing liquidity to cover any tax obligations.
Does Indiana Impose an Estate Tax?
Unlike several other states, Indiana does not currently impose an estate or inheritance tax. Indiana repealed its inheritance tax in 2013, making it one of the more favorable states for wealth transfer from a state tax perspective. This means that estate planning for Indiana residents primarily focuses on federal tax exposure rather than state-level obligations. Although the absence of a state estate tax simplifies planning, it does not eliminate the need for comprehensive strategies. Federal taxes remain a significant concern for large estates, and legislative changes could reintroduce state-level taxes in the future.
Can We Help You Understand How OBBBA Impacts Estate Planning in Indiana?
For more information, please join us for an upcoming FREE seminar. If you would like assistance understanding how OBBBA impacts estate planning in Indiana, contact an experienced Indianapolis estate planning attorney at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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