On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (“OBBBA”) into law. The OBBBA is the tax and budget reconciliation package for the current 2025 fiscal year through 2034. While the bill focuses primarily on spending, budgeting and tax changes, there are some issues that can affect your current estate plan as well as future estate tax planning.
One of the major 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 “exclusion amount” for federal estate tax 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”). Allowing this sunset to occur would have meant that the 2026 federal exemption would decrease 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. This allows high-net worth taxpayers to accelerate significant lifetime gifting and fund dynastic trusts more efficiently.
Additionally, this increased exclusion amount also applies to the Generation Skipping Transfer Tax (“GST Tax”) and the federal gift tax. The GST tax exemption will align with the gift and estate tax, with a $15 million dollar per individual exemption. This is important as it allows for generational wealth transfers and multi-generational planning.
It is important to note that individuals who have previously made significant wealth transfers and had exhausted their lifetime gift tax exclusion amounts will now have an additional $1,110,000 exclusion amount to use in 2026 for gifting. This means another opportunity to make additional leveraged gifts which can further reduce future estate tax exposure when also factoring in income and appreciation on a going forward basis.
For those high-net worth taxpayers with taxable estates who have been waiting on the sideline for some stability in the federal gift and estate tax, the changes brought about by the OBBBA present an excellent window of opportunity and it is advisable to consider estate tax planning in the near term to take full advantage of these changes. 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. Strategies such as revocable living trusts, advanced directives, Medicaid/elder law planning, and planning for incapacity remain as important as ever.
Another key issue of concern is the OBBBA’s treatment of State and Local Tax (“SALT”) deductions. Through the OBBBA, 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. That $40,000 amount will then be adjusted for inflation, starting with $40,400 in 2026 and further increased by 1% annually through 2029. However, the SALT deduction is phased out for those taxpayers who earn more than $500,000 of income annually, with a complete phase out for taxpayers earning $600,000 or more. The OBBBA also preserves a well-utilized alternative for partners in partnerships or shareholders in S corporations (i.e. pass through entities), to take advantage of a pass-through entity tax commonly known as a PTET (Pass Through Entity Tax) that can avoid the SALT cap under certain state laws.
For parents, another important change resulting from the passage of the OBBBA is the modification of the rules for 529 Plans. 529 Plans are state-sponsored investment plans specifically designed to be utilized for a Plan beneficiary’s educational expenses. Under the current law, distributions from 529 Plans are not taxable if those distributions are used for specific educational expenses, such as college tuition, room and board, textbooks and miscellaneous supplies. The law also permits up to $10,000 annually from 529 Plans to be applied for tuition for public, private and religious elementary and secondary schools. Under the OBBBA, what qualifies as a tax-free distribution for educational expenses has been expanded, namely distributions for tutoring expenses, college admission exams such as the SAT and ACT, and educational therapies.
Changes in relation to charitable deductions have also been addressed in the OBBBA. 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 example, a donor who has $1,000,000 in adjusted gross income will not get any tax benefit for the first $5,000 (i.e. 0.5% of $1,000,000) of charitable donations made. 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.
