After months of intense negotiations, on July 4, 2025, the One Big Beautiful Bill (OBBB) was signed into law making various changes to the tax code that impacts estate, gift and income tax planning.
Increased Estate, Gift and Generation-Skipping Transfer Tax Exemptions
The Federal estate and gift tax exemption is currently set at $13.99 million per individual ($27.98 million for a married couple). This figure had been scheduled to be reduced to approximately $7 million in 2026. However, the OBBB increases an individual’s Federal estate and gift tax exemption to $15 million dollars ($30 million for a married couple) starting on January 1, 2026. This number will be indexed for inflation from 2026. In addition, this change is not subject to a potential future sunset and is therefore permanent.
Similar to the Federal estate and gift tax exemption, an individual’s Federal generation-skipping transfer tax exemption was also increased to $15 million starting on January 1, 2026. This number was also made permanent and indexed for inflation from 2026.
While the new bill does not directly impact state estate tax laws, there are some effects. The New York estate tax basic exclusion was not changed, further widening the gap between the New York and Federal estate tax thresholds making estate planning for clients with large estates in New York even more important. The Connecticut estate and gift tax exemption is aligned with the Federal estate and gift tax exemption and will therefore match the increases under the OBBB.
Expansion of Qualified Small Business Stock
The OBBB enhances the gain exclusion and availability of qualified small business stock (QSBS) for stock issued after July 4, 2025. Specifically, the OBBB increases the exclusion from Federal capital gains tax from $10 million to $15 million (indexed for inflation). In addition, the OBBB changes the holding period required to qualify for the exclusion. For stock issued prior to July 4, 2025, the taxpayer must have held QSBS for five years before sale in order to qualify for the exclusion. Under the OBBB, for stock issued after July 4, 2025, a taxpayer will receive a 50% exclusion from Federal capital gains tax for QSBS held for three years, a 75% exclusion from Federal capital gains tax for QSBS held for four years and 100% exclusion from Federal capital gains tax for QSBS held for five or more years. The OBBB also increases the gross asset threshold for companies to qualify as a qualified small business from $50 million to $75 million (indexed for inflation) for stock issued after July 4, 2025.
Increase to State and Local Tax Deduction Limitation
Starting in the 2025 tax year, the cap on the state and local tax (SALT) deduction is increased to $40,000 for both individuals and married couples. The increased SALT deduction is subject to phase outs for taxable income over $500,000 (although cannot go below $10,000). The increased SALT deduction is also scheduled to sunset and revert back to $10,000 for individuals and married couples in 2030.
Planning Considerations
The use of trust planning continues to be extremely valuable for individuals and families looking to leverage the increased exemptions to remove assets out of their taxable estates and create multi-generational wealth. In addition, the expansion of the QSBS exclusion and SALT deduction provides individuals and families with the opportunity to save on income taxes. When coupled with trust planning, these income tax savings can become significant. Individuals should assess their estate planning strategies to maximize the benefits offered by the OBBB.
