The One Big Beautiful Bill Act (OBBBA) was recently signed into law by President Trump and contains several provisions relevant to estate planning. Here are some of the highlights:
Increased Estate and Gift Tax Exemptions
Prior to the OBBBA, the high estate, gift, and generation-skipping transfer (GST) tax exemptions were set to expire at the end of 2025, dropping from $13.99 million to $7 million for an individual ($27.98 million to $14 million for a married couple).
Now, beginning on January 1, 2026, the individual estate and gift tax exemption jumps to $15 million ($30 million for a married couple) and will be indexed for inflation annually. The same is true for the GST exemption. The OBBBA makes these higher exemption amounts permanent. However, Congress may opt to reduce these exemptions at any time, so it remains important to proactively and regularly review your estate plan.
The OBBBA does not modify the annual gift tax exclusion. This exclusion is $19,000 and will continue to be indexed for inflation.
Trust Taxation Stability
The OBBBA permanently retains the 2017 Tax Cuts and Jobs Act income tax brackets for trusts and estates, with adjustments for inflation. While these tax rates remain high (e.g., 37% when taxable income is more than $15,200), the OBBBA provides welcome long-term predictability for planning with irrevocable trusts. These tax brackets should also be monitored regularly, because Congress retains the right to change them at any time.
Increased SALT Deduction
The State and Local Tax deduction (SALT) is a tax break that permits those who itemize their deductions to subtract certain state and local taxes from their federal taxable income. Previously capped at $10,000, the deduction amount has now increased to $40,000 starting in tax year 2025, subject to a 1% inflation adjustment.
An income-based phase-out applies to the SALT deduction cap. For taxpayers with modified adjusted gross income above the specified threshold (in 2025, the threshold amount for individuals and married couples filing jointly is $500,000), the cap is reduced by 30% of the excess income, but not below $10,000. Without further congressional action, the SALT deduction will sunset after five years.
Trump Accounts
The OBBBA also creates “Trump Accounts,” which are investment accounts for U.S. citizens under 18 years old who have a Social Security number. The government will provide a one-time contribution of $1,000 to a Trump Account for each eligible U.S. citizen born on or between January 1, 2025 and December 31, 2028.
Total additional contributions, which can be made by anyone, are capped at $5,000 per calendar year per account, with adjustments for inflation starting in 2028. Employers of the account beneficiary or an employee whose dependent is the account beneficiary can contribute up to $2,500 to such account per year and such contribution is not included in the employee’s gross income.
All such funds must be invested in a diversified fund that tracks a U.S. stock index (e.g., the S&P 500). Generally, no distributions are allowed before January 1 of the year the beneficiary turns 18 years old. Earnings within the account are not taxed until distributed, allowing for tax-deferred growth.
Other Important Considerations
In light of these recent changes, below are some ideas to consider as you evaluate what may be right for you, your family, and your estate plan:
- With the higher estate and gift tax exemption limit and the uncertainty of future congressional action, individuals and married couples may want to consider making gifts or funding trusts now to lock in the benefit of the higher exemptions, being mindful to balance the carryover basis on such gifts versus the step-up in basis on property owned at death.
- Valuation planning is especially important for unique or illiquid assets like art, collectibles, or closely held businesses, because these assets typically appreciate over time. Without understanding their current value, it is difficult to determine how close your estate may be to the estate and gift tax exemption thresholds.
Contact a Bailey Cavalieri estate planning attorney if you have any questions about how the OBBBA may impact your estate plan, or if you’re simply looking to ensure your plan is up to date and aligned with your goals.