In our blog just under a year ago of January 29, 2025, we speculated on what to expect for U.S. estate tax under a second Trump administration. With the decrease to about half the current amount of the lifetime exclusion amount set to occur on January 1, 2026 unless new legislation was passed, it looked like 2025 would need to be a major year for U.S. estate tax reform.
One Big Beautiful Bill Act
The answer arrived soon enough on July 4, 2025 when the “One Big Beautiful Bill Act” (the “Act”) was signed into law by President Trump. The new legislation has no sunset provision and “permanently” increases the U.S. estate tax exemption amount starting January 1, 2026 to $15M (USD). From 2027, the exemption amount will be indexed for inflation. As a result of the Act, commencing in 2026 a married U.S. couple can pass on $30M (USD) free of estate tax.
While termed a “permanent” tax change, nothing really is permanent when it comes to legislation. The Act could be amended or repealed in future, including by a future different administration. However, the increased exemption amount at least in the near term provides increased certainty and comfort for many in their estate planning, and at such a high level reduces exposure to U.S. estate tax for many.
State Estate and Inheritance Taxes
It should also be borne in mind that there are 12 states – Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington – and the District of Columbia that have an estate tax. The federal Act has no impact on them and planning is still required for those who are subject to them. An estate tax is paid by the estate before it is distributed to the beneficiaries.
As well, five states have an inheritance tax: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. An inheritance tax is paid by the beneficiary, and not by the estate.
What Impact Will the Act Have on Canadians?
For Canadians who are not U.S. citizens, green card holders or otherwise considered to be domiciled in the U.S. for U.S. estate tax purposes but who own U.S. situs assets, which include stock in U.S. companies, U.S. real property and tangible personal property situate in the U.S. as well as certain other assets at death, the large permanent exemption is at least one U.S. legislative change that is helpful to Canadians by reducing their exposure to U.S. estate tax!
Certain relief is available if your worldwide estate exceeds $15M (USD) under the Canada-U.S. Tax Treaty based on a formula that prorates the exemption based on the ratio of the value of your U.S. situs assets to the value of the assets of your worldwide estate.
If the value of your worldwide estate is under $15M (USD), U.S. estate tax is eliminated under another exemption called the small estate exemption. The higher permanent exemption will help many Canadians who fall under this threshold in eliminating U.S. estate tax exposure.
There is also a basic general exemption amount of $60,000 (USD) which covers U.S. situs assets up to that amount.
For those with larger estates, U.S. estate tax is 40% once the taxable estate is $1M (USD) or more, and at graduated rates under this threshold.
Annual Gift Tax Exclusion Amounts
In 2026, the annual exclusion amount for making gifts is $19,000 (USD) for a U.S. person, or for a married couple, $38,000 (USD) combined. For gifts from a U.S. citizen spouse to a non-U.S. citizen spouse, the annual exclusion amount is $194,000 (USD). This annual exclusion is the amount that a U.S. person can give to each recipient each year without paying any gift tax or using part of his or her lifetime exclusion amount.
In a world of increasing uncertainty in 2026, the Act provided some respite and increased certainty regarding U.S. estate tax.
For Further Reading
Here is our entire blog archive on U.S. Estate Tax and related planning issues.
Here is our entire blog archive on Canada-U.S. cross-border and multijurisdictional issues.
We wish all of our readers a Happy New Year and all the best in 2026!
— Margaret O’Sullivan