Estate planning is a vital aspect of managing wealth for individuals, families, and businesses. As the tax landscape continues to evolve, it is essential for taxpayers to stay informed about the changes and implications of new legislation. One such significant piece of legislation is the One Big Beautiful Bill Act (“OBBBA”), signed into law by President Trump on July 4, 2025. The OBBBA, a tax and budget reconciliation package, has far-reaching implications for estate planning, and taxpayers must understand how this legislation will affect their current estate plan and future estate tax planning. The OBBBA primarily focuses on spending, budgeting, and tax changes. However, it also has significant implications for estate planning, particularly in relation to federal estate tax and gift tax. One of the key changes to estate planning as a result of the OBBBA is the prevention of a decrease or “sunset” to the current federal and gift tax exemptions. Prior to the passage of the OBBBA, the federal estate tax exemption was scheduled to decrease on December 31, 2025, with the expiration of certain tax policies included in the 2017 Tax Cuts and Jobs Act (“TCJA”). If this had occurred, the 2026 federal exemption would have decreased from the current $13.99 million to around $7 million per U.S. taxpayer in 2026. However, with the enactment of the OBBBA, on January 1, 2026, the federal estate and gift tax exemption will be set at $15 million per person ($30 million for married couples) and indexed for cost of living in subsequent years.
- Benefits to High-Net Worth Taxpayers
- This increased exclusion amount applies to the Generation Skipping Transfer Tax (“GST Tax”) and the federal gift tax, allowing for generational wealth transfers and multi-generational planning.
- High-net worth taxpayers who have previously made significant wealth transfers and have exhausted their lifetime gift tax exclusion amounts will now have an additional $1,110,000 exclusion amount to use in 2026 for gifting.
This change has significant implications for high-net worth taxpayers who have been waiting on the sidelines for some stability in the federal gift and estate tax. The OBBBA presents an excellent window of opportunity for these taxpayers to consider estate tax planning in the near term. Since the political pendulum tends to swing in both directions, there is no guarantee that a harsher estate tax regime may be enacted if a future administration changes – or reverses entirely – the OBBBA. Taxpayers should continue to plan for the long term by utilizing flexible trust vehicles to transfer their wealth. This can include gifts to dynastic trusts, sales of assets to freeze lower values, and an array of other proven estate planning strategies. For those less concerned about federal estate taxes, it remains worth considering the impact of state estate and inheritance taxes, and planning around obtaining optimal income tax savings post-OBBBA, and being mindful of asset protection, business succession, and an orderly administration of one’s estate.
- Revocable living trusts remain a key component of many estate plans, providing flexibility and asset protection.
- Advanced directives and Medicaid/elder law planning are also essential for ensuring the well-being of loved ones.
- Planning for incapacity and business succession are critical considerations for individuals with complex business interests.
In addition to the changes in federal estate tax and gift tax, the OBBBA also addresses the treatment of State and Local Tax (“SALT”) deductions. The SALT deduction cap is temporarily increased from its current $10,000 amount to $40,000 through January 1, 2029, when it will revert back to $10,000. This increase applies to taxpayers who earn more than $500,000 of income annually and phases out for those earning $600,000 or more.
- Changes in SALT Deduction
- The SALT deduction is phased out for taxpayers earning more than $500,000 of income annually, with a complete phase out for taxpayers earning $600,000 or more.
- The SALT deduction cap is increased to $40,000 through January 1, 2029, and then adjusted for inflation.
- Partners in partnerships and shareholders in S corporations can take advantage of a pass-through entity tax to avoid the SALT cap under certain state laws.
The OBBBA also addresses changes in charitable deductions. For taxpayers who itemize their deductions, donations will only qualify as charitable if they exceed 0.5% of the taxpayer’s adjusted gross income. For taxpayers who do not itemize their deductions, the OBBBA allows them to take the standard deduction and claim a charitable deduction of up to $1,000 for single filers and $2,000 for joint filers.
“The One Big Beautiful Bill Act presents a unique opportunity for high-net worth taxpayers to reassess their estate plans and make strategic decisions about gift giving and wealth transfer.”
In conclusion, the OBBBA has far-reaching implications for estate planning, particularly in relation to federal estate tax and gift tax. Taxpayers must understand how this legislation will affect their current estate plan and future estate tax planning. By utilizing flexible trust vehicles, planning for the long term, and considering the impact of state estate and inheritance taxes, taxpayers can make the most of the opportunities presented by the OBBBA. As the tax landscape continues to evolve, it is essential for taxpayers to stay informed about new legislation and its implications. The OBBBA is a significant piece of legislation that affects various aspects of estate planning, and taxpayers must take proactive steps to understand its impact and plan accordingly.
