Positive Effects on German-American Estate Cases
Introduction
US tax law is an area in which political decisions and tax subtleties are closely intertwined. One example of this was the doubling of the general exemption amount under US federal estate and gift tax (lifetime exclusion amount) by the Tax Cuts and Jobs Act in 2017 – however, the regulation was initially limited in time and would therefore have expired on December 31, 2025. With the new One Big Beautiful Bill Act, the US legislature has now permanently increased this exemption, making it “bigger and even more beautiful.”
Legal Situation before the Reform
The lifetime general exemption amount for US federal estate and gift tax, which applies to the sum of the estate and all lifetime gifts, was originally set at USD 5 million and was adjusted annually for inflation. As a result of the doubling in 2017 with the Tax Cuts and Jobs Act by the first US administration under Donald Trump, as well as the interim inflation-related increases, the general exemption amount is now (in 2025) USD 13.99 million. However, the Tax Cuts and Jobs Act of 2017 only provided for a temporary extension until December 31, 2025, meaning that the general exemption would have fallen back to half (currently approximately USD 7 million) for all estates and gifts occurring on or after January 1, 2026.
Changes brought about by the One Big Beautiful Bill Act
With the One Big Beautiful Bill Act signed by President Donald Trump on July 4, 2025, a comprehensive new tax and spending bill has now been passed in the US. The changes that come into force as a result provide, in particular, for a permanent increase in the general exemption for US federal estate and gift tax to USD 15 million. This basic amount of the general exemption will also be adjusted regularly for inflation in the future, as was the case under the previous regulation. The new regulation will apply to all estates and gifts from January 1, 2026.
Conclusion and Implications for German-American Estate Cases
The One Big Beautiful Bill Act ends years of uncertainty in US federal estate and gift tax law and creates planning security for heirs and donors with US connections. In addition, the increased general allowance is not only permanent, but will also continue to rise in the future due to inflation. The law thus represents an important step toward long-term and reliable succession planning from the perspective of US national tax law—especially for wealthy individuals and their spouses.
However, the effects are also being felt beyond US borders: The German-US double taxation treaty for estate, inheritance, and gift tax contains so-called dynamic references to the applicable US exemption amount. Among other things, this means that in German-American estate cases with limited tax liability in the US, a significantly higher proportionate US exemption amount can continue to be used in the future than would have been the case if the previous temporary regulation had expired after December 31, 2025.
Example of the Impact on German-American Estate Cases:
The estate of a testator living in Germany includes a property located in the US worth USD 2 million. The remainder of his estate (located in Germany) is worth USD 6 million. Since a quarter of the total assets are located in the US, special provisions under the German-US double taxation treaty mean that in this case a proportional exemption of USD 3.75 million (i.e. one quarter of the future exemption amount of USD 15 million) is to be taken into account in this case. Without the reform, however, only a proportional exemption amount of approximately USD 1.75 million (i.e. one quarter of the exemption amount reduced to approximately USD 7 million after December 31, 2025 under the previous legislation) would have been taken into account in the future.
As a result, the One Big Beautiful Bill Act not only provides tax relief within the US, but also benefits German-American estate cases with limited tax liability in the US. For President Trump, its implementation also means the fulfillment of one of his key tax policy campaign promises.