Understanding the Federal Estate Tax Landscape
The federal estate tax has long posed a challenge to high-net-worth families striving to preserve generational wealth. While intended as a means of revenue generation and redistribution, in practice, the estate tax often functions as a double tax—penalizing families for success and savings accumulated over decades.
Under current law, the federal estate tax exemption sits at $13.99 million per individual ($27.98 million per married couple) in 2025. However, this higher threshold—granted temporarily by the 2017 Tax Cuts and Jobs Act—is scheduled to sunset on December 31, 2025, dropping the exemption to roughly $7 million per person. Without action from Congress, countless families will face a substantial increase in tax liability beginning in 2026.
The One Big Beautiful Bill: A Pro-Family Tax Solution
The One Big Beautiful Bill (“OBBB”)—a centerpiece of pro-growth tax policy introduced in 2025—aims to resolve this looming issue. Among its provisions, the bill permanently increases the federal estate and gift tax exemption to $15 million per individual ($30 million per couple), indexed annually for inflation. The bill retains the 40% estate tax rate but shields more wealth from that burden.
Key Impacts of the OBBB:
- Protects family businesses and farms from forced liquidation due to estate tax bills.
- Offers certainty in long-term estate planning, preventing a sudden drop in the exemption.
- Encourages legacy-building, rather than penalizing generational wealth transfer.
The OBBB dramatically reduces or eliminates federal estate tax for most high-net-worth families. By locking in a historically high exemption, it gives clients the freedom to plan without racing against legislative cliffs or engaging in overly complex gifting strategies.
Case Study: Jimmy Buffett’s Estate and the Value of Planning
The recent dispute surrounding the $275 million estate of the late Jimmy Buffett illustrates the high stakes involved in trust and estate administration. As reported by Fox News and People, Buffett’s widow, Jane, has filed suit against a co-trustee for alleged mismanagement of trust assets—including reportedly earning less than 1% returns on key investments.
While this dispute centers around trustee conduct, it underscores the importance of well-structured estate plans. With estates of Buffett’s size, minimizing exposure to the Federal Estate Tax and ensuring fiduciary accountability are paramount.
Without proper planning, Buffett’s estate could have faced an estate tax liability exceeding $100 million. However, the use of marital and family trusts, along with lifetime exemptions, likely reduced this liability significantly. Moreover, this case highlights the significance behind appointing a qualified individual or company to serve as a professional Trustee of Irrevocable Trusts so that common mismanagement errors can be avoided. Trusts can be complicated structures, and it’s important to have someone running the show that knows what they’re doing.
Finally, the OBBB would offer even greater relief for estates like Buffett’s by:
– Increasing the exemption for surviving spouses.
– Simplifying the administration of large estates.
– Preserving more wealth for heirs rather than diverting it to the IRS.
Additional Case Study: Michael Jackson’s Estate and IRS Valuation Dispute
Another high-profile example is the ongoing legal battle involving the estate of Michael Jackson. In May 2024, People reported that Jackson’s executors cannot fund key trusts—for his children, Paris, Prince, Bigi, and his mother, Katherine—until resolution of an IRS valuation dispute tied to federal estate tax.
Case Highlights:
– The IRS asserts the estate underestimated its assets and demands an additional $700 million in taxes and penalties.
– Though the estate prevailed in Tax Court in 2021, a motion for reconsideration regarding the value of Jackson’s music catalog is still pending.
– In the meantime, the executors have halted new trust funding due to uncertainty over the estate’s taxable amount and eligibility for a 20% charitable deduction tied to that valuation.
How does this apply to the average high net-worth family?
– This case highlights the critical importance of accurate asset valuation in estate tax returns—especially for publicly traded assets like music catalogs or royalties.
– Until final resolution, trust distribution and beneficiary funding are effectively frozen, demonstrating how estate tax disputes can halt even well-structured plans.
– The pro-family reforms under the Big Beautiful Bill, by providing certainty in exemption thresholds, would reduce the likelihood of such protracted IRS valuation audits affecting trust funding and asset transfers.
– While ongoing trust distributions in Jackson’s case continue as allowances, the broader trust structures remain in limbo, underscoring the dual importance of both high exemptions and precise valuation planning that should always be done by a valuation expert and qualified family office team.
The Critical Role of Trusts in Estate Tax Planning
Whether or not legislation like the OBBB becomes law, trusts remain essential tools for preserving and protecting wealth:
- Irrevocable Trusts: Remove appreciating assets from taxable estates.
- Dynasty Trusts: Allow wealth to skip multiple generations with minimal tax impact.
- Irrevocable Life Insurance Trusts (ILITs): Provide estate liquidity without inflating the taxable estate.
- Credit Shelter & QTIP Trusts: Maximize married couples’ exemption use and provide asset control.
These structures also offer benefits beyond tax savings, such as:
– Avoiding probate, which can freeze assets for months—if not years—for even the simplest of estates.
– Ensuring privacy: trusts are private documents that are not posted or uploaded to any public site, unlike your average Last Will & Testament, if probated.
– Protecting assets from lawsuits or divorce.
For high-net-worth families, trusts are not merely helpful—they are foundational.
Conclusion: A Call to Proactive Planning
The One Big Beautiful Bill reflects a commonsense, pro-family approach to tax policy. By raising and stabilizing the estate tax exemption, it supports responsible planning and preserves the American legacy of hard work and generational stewardship.
Clients with estates approaching or exceeding $7 million should act now—whether the bill passes or not. Planning with today’s exemption levels, using tools like irrevocable trusts, can ensure that your family’s wealth is protected and your wishes are carried out. At Peabody Law Firm, we help clients navigate this complex landscape with clarity and confidence. Whether you’re preparing for future changes or optimizing your existing plan, now is the time to take action.