08/19/2025

The One Big Beautiful Bill Act and Estate Planning: What You Need to Know

The One Big Beautiful Bill Act (“OBBBA” or the “Act”), signed into law on July 4, 2025, made permanent changes to federal estate, gift and generation-skipping transfer (GST) taxes. These are the key provisions that are relevant to estate planning clients:

Permanent Exemption Increases

  • Unified estate and gift tax exemption is permanently increased to $15 million per individual ($30 million for married couples) beginning on January 1, 2026, with annual inflation adjustments thereafter. This new $15 million exemption amount will be reflected as the “basic exclusion amount” in Internal Revenue Code (IRC) section 2010(c)(3)(A), where it will officially replace the old $5 million exemption. The OBBBA did not make any changes to the rules for portability elections that can be made by surviving spouses under IRC section 2010(c).
  • GST exemption is still equal to the basic exclusion amount and will also be indexed for inflation. The GST exemption, unlike the estate and gift exemption, is still not portable from spouse to spouse.
  • How “permanent” is the basic exclusion amount as enacted? The increase in the basic exclusion amount to $15 million for 2026, with further inflation-indexed increases after 2026, is “permanent” because no automatic sunset or expiration date has been added. Therefore, the increased basic exclusion amount will not be decreased unless a future Congress and President enact and sign legislation to scale back or change the basic exclusion amount.

Rules that Remain Unchanged

  • Top marginal estate, gift and GST tax rates remain at 40%.
  • The step-up in basis at death remains intact. This means heirs will continue to receive assets with a basis equal to their fair market value on the decedent’s date of death. Gifts during life continue to carry over the donor’s basis.
  • The Act does not impose any new taxes on trusts or alter their tax treatment. Income tax brackets for trusts remain unchanged, and common estate planning structures, such as grantor trusts, SLATs, and GRATs, remain unaffected.

Other Relevant Provisions in the OBBBA

  • State and Local Taxes (SALT): The OBBBA raises the cap on the deduction for state and local taxes to $40,000 for taxable years 2025 through 2029 (with that cap increasing by 1% each year) and then reverts to $10,000 in 2030. The increased cap in OBBBA is subject to a phasedown for higher income households.
  • Endowment Tax: The OBBBA adds two new graduated rates (4% and 8%) to the 1.4% university excise tax. The graduated rates are based on the size of the endowment measured on a per student basis. The rates are as follows:
    • 1.4% for endowments of at least $500,000 but less than $750,000;
    • 4% for endowments of at least $750,000 but less than $2 million; and
    • 8% for endowments of $2 million or more.

The Act exempts from the tax institutions with fewer than 3,000 students and endowments of less than $500,000. These modifications will apply to taxable years beginning after December 31, 2025.

  • Qualified Small Business Stock: Three significant expansions to Section 1202 regarding qualified small business stock (QSBS) benefits: (1) holding period shortened from five years to three years, (2) capital gain exclusion increased from $10 million to $15 million, and (3) gross asset limit to qualify as a “small business” increased from $50 million to $75 million and will be indexed for inflation. These changes take effect in 2026.
  • Deduction for Qualified Business Income: The Act makes permanent the 20% deduction for qualified business income from pass-through entities under IRC section 199A.
  • Not included – Private Foundations: The Act eliminated a House-passed provision that would have increased the net investment income tax on private foundations under IRC section 4940.

OBBBA Impact on Estate and Gift Tax Planning

  • For those individuals who have already used up most or all of their lifetime exclusion amount ($13,990,000 in 2025) by making taxable gifts, the increase to $15 million in 2026 means that these individuals will have more unused exclusion to use in 2026 and future years.
  • For unmarried individuals with a net worth less than $15 million (and for married couples with a net worth of less than $30 million) the likelihood of owing federal estate tax after death has decreased significantly, unless such individuals have made significant taxable gifts and used up most of their lifetime exclusion. Note: those individuals who reside in one of the 18 states and jurisdictions that currently impose an estate or inheritance tax at death will still need to consider planning for minimizing state estate and inheritance taxes even if those individuals are under the federal estate tax exemption of $15 million.1
  • Most importantly, OBBBA’s prevention of a decrease in the basic exclusion amount and the permanent increase to $15 million gives high net worth individuals and married couples time to plan carefully and consider strategies to minimize federal estate tax after death. There is no longer a “deadline” of December 31, 2025, to use the higher exemption or lose it. However, high net worth individuals should not assume they have unlimited time to plan, rather, they should take advantage of the next two years to implement prudent taxable gift planning and estate tax reduction strategies before a potential future change in control of Congress occurs which could result in legislation impacting the provisions in the OBBBA.

If you would like more information on tax or estate planning strategies, please contact Jennifer Welch Murray or your Pierce Atwood Trusts and Estates attorney.

1As of January 2025, the following states levy some sort of tax on a decedent’s estate: 
States with an Estate Tax: Connecticut, District of Columbia, Hawaii, Maine, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont and Washington.
States with an Inheritance Tax: Iowa, Kentucky, Nebraska, New Jersey and Pennsylvania.
State with both an Inheritance Tax and an Estate Tax: Maryland.

[Note: state laws change frequently and the information provided above may not reflect those changes.]