The federal budget was signed into law on July 4. It is massively complicated, and massively controversial. In this post, we touch on three provisions of the law most likely to directly affect our clients.
Estate Tax Provisions: Good News For Clients With Significant Assets
As we reported previously, the federal estate tax exemption, currently $13.99 million per person, was scheduled to decrease to approximately $7 million in 2026. That will not happen. Under the new legislation, the unified lifetime estate tax and gift tax exemption actually increases. It sets the exemption at $15 million per person, or double that for a married couple. This is the amount you may give away, in life and death combined, without paying any estate or gift tax. The law is effective January 1, 2026 and will apply to estates of individuals dying and making gifts after December 31, 2025.
Unlike the estate tax provisions in the 2017 Tax Cut and Jobs Act, there is no “sunset” clause on this exemption. It will remain at $15 million and will be adjusted annually for inflation.
By the way, the State of Florida does not have its own estate tax. It also does not require beneficiaries to pay inheritance tax.
Note that although the new budget makes the $15 million exemption permanent, that only means that no end date is built into the legislation, as was the case with the sunset provisions of the 2017 Tax Cut and Jobs Act. Depending on future political and economic winds, a new administration and Congress could still make changes to this “permanent” exemption. As always, our attorneys will continue to keep our eye on developments, notify our clients as to changes, and make planning recommendations that will allow clients to pass as much tax-free money as possible to their heirs.
Drastic Cuts to Medicaid Could Imperil Seniors
Advocates for older adults are highly critical of the new law and have made dire predictions about its impact on health services for seniors. If you are concerned about protecting your nest egg from nursing home costs, this bill will not ease your worry.
The new law chops $800 billion from Medicaid over the next decade. Because Medicaid pays the bulk of nursing home costs in America, slashed federal payments may make it more difficult for already struggling nursing homes to stay solvent, stay open, maintain sufficient staffing, and provide residents with quality care. In fact, Kaiser Health News reports that in 2024, 28% of nursing homes were failing to provide adequate care. Katie Smith Sloan, President and CEO of Leading Age, doesn’t mince words: “This harmful, cold-hearted bill will wreak havoc on our country’s fragile aging services infrastructure – at a time when demand for the Medicare and Medicaid supported services it delivers is growing.”
Rachel Werner, the Executive Director of the University of Pennsylvania Leonard Davis Institute of Health Economics, suggests that the bill may force seniors into institutions who would otherwise be able to age at home with the proper support. “My concern is that home-based health care is going to be cut,” she states. She projects that the shortfall in Medicaid funding to states will result in reduction of the community-based and in-home services that allow elders to age at home, forcing them into nursing homes or requiring family members to step up and provide unpaid caregiving. Currently 65,300 elderly Floridians receive home and community-based services.
We cannot predict precisely how the budget will impact our middle-class clients seeking to preserve some of their assets from nursing home expenses. It is likely that it will become more difficult to qualify for Medicaid benefits. We will keep an eye on developments. Planning, now, may be an advantage to preserve assets.
Temporary Social Security Tax Cut For Some
Many seniors had anticipated that federal taxes on Social Security would be entirely eliminated under the new bill. That has not happened. Social Security will continue to be taxed. The budget establishes a $6,000 tax deduction for people 65 and older whose income is under $75,000 for single filers, double that for married joint filers. The deductions decrease with higher income and are not available once a single filer’s income reaches $175,000 and a married couple’s income reaches $250,000. The deduction is temporary, however; it will no longer be available in 2029.
Most Social Security beneficiaries will not be affected because they do not earn enough to pay taxes on Social Security income, says Howard Gleckman, senior fellow at the non-partisan Urban Institute who writes about aging policy issues for Forbes. Currently, 64% of seniors collecting Social Security are already exempt from federal taxes on their benefits.
