For years, the estate planning world has been bracing for a “sunset”, a scheduled expiration of tax cuts that threatened to cut the federal estate tax exemption in half by 2026.
We can finally breathe a sigh of relief. With the signing of the One Big Beautiful Bill Act (OBBBA) in July 2025, that threat is gone. However, while Congress has given us good news, the courts and the IRS have introduced new strict rules that could catch unwary families off guard—especially those with international ties to Korea.
Here is what you need to know to protect your wealth in this new landscape.
1. The “Fiscal Cliff” is Gone
The most important development is that the federal estate tax exemption will not drop back to $7 million. Instead, starting January 1, 2026, the exemption is permanently set at $15 million per person ($30 million for a married couple), indexed for inflation.
What this means for you:
- The Pressure is Off: If your net worth is under $30 million (as a couple), you likely no longer need aggressive strategies just to avoid federal estate tax.
- Shift Strategy: Instead of focusing on giving assets away to save estate tax, focus on keeping assets to get a “step-up” in tax basis at death. This can save your heirs millions in capital gains taxes when they eventually sell inherited property.
2. The Courts Are Cracking Down on “Sloppy” Planning
While the tax laws are favorable, the courts are becoming stricter about how you manage your estate plan. Three recent court cases (McDougall, Becker, and Fields) sent a clear message: formalities matter.
- Family Loans: If you lend money to children, it must look like a real business deal. You need a written note, you must charge interest, and they must actually make repayments. If not, the IRS will call it a taxable gift.
- Family Partnerships: You cannot set up a Family Limited Partnership (FLP) just to save taxes. You need a legitimate business reason (like managing real estate), and you cannot treat the partnership bank account like your personal piggy bank.
- Trusts: Do not terminate trusts early without professional advice. The McDougall case ruled that ending a “QTIP” marital trust early can trigger a massive unexpected gift tax.
3. International Families: The Korea Connection
For clients with assets or family in South Korea, the situation is more complex. Unlike many other countries, the U.S. and Korea do not have an Estate Tax Treaty. This creates a high risk of double taxation.
The “5-Year Cliff” for Residents in Korea
If you are a U.S. citizen or green card holder moving to Korea, you need to watch the calendar.
- Short-Term Resident (0-5 Years): If you have lived in Korea for 5 years or less out of the last 10 years, Korea generally only taxes your assets in Korea. Your assets outside Korea are exempt.
- Permanent Resident (Over 5 Years): Once you hit the 5-year mark, you are considered a full resident. Korea will then tax your worldwide estate (including your U.S. home and brokerage accounts) at rates up to 50%.
The “Situs” Trap: U.S. Stocks
Many Korean residents do not realize that owning U.S. stocks (like Apple or Tesla) in their personal name is a tax trap.
- The U.S. charges estate tax on “U.S. situs assets” owned by non-residents.
- The exemption for non-residents is only $60,000.
- The Fix: Non-residents generally should not hold U.S. stocks directly. It is often better to hold them through a foreign corporation or entity to block U.S. estate tax liability.
4. New IRS Compliance: The “Exit Tax” Form
After a 17-year delay, the IRS has finally released Form 708. This form is used to report gifts or inheritances received from “Covered Expatriates” (Americans who renounced their citizenship).
If you receive a gift from a former U.S. citizen, the recipient (you) may owe a 40% tax on that gift. This is a severe rule that is now being actively enforced.
The Bottom Line
The legislative environment has stabilized, but the administration of your estate has never been more scrutinized.
- Review your trusts: Ensure all formalities are being followed.
- Check your residency: If you are in Korea, know exactly how many days you have been there.
- Audit your assets: Ensure you aren’t holding U.S. stocks in a way that triggers an unnecessary 40% tax bill.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Please consult with us regarding your specific situation.