The One Big Beautiful Bill Act (OBBBA) signed into law on July 4th, 2025, includes some critical estate planning changes. While the main estate planning related changes are focused in just a few areas, OBBBA gives many taxpayers a compelling reason to create or revisit their estate plans.
Estate and Gift Tax Exemption
First, the unified estate and gift tax exemption did not expire and will now be set at $15 million per person ($30 million for married couples) starting on January 1st, 2026. This welcome news is an increase from the existing exemption amount which is currently set at $13.99 million per person ($27.98 million per married couple). The existing exemption was set to be cut in half on January 1st, 2026, but instead, now there will be roughly a one million dollar increase per person under this critical tax shelter.
The increase in the unified estate and gift tax exemption is critical because the federal wealth transfer tax remains the same at 40% for any amount of property left to others post death that exceeds the $15 million per person threshold. Few want to donate 40% of their possessions to taxes when they die, so this portion of OBBBA is a relief for those with assets that will exceed the $15 million exemption. The new $15 million per person unified estate and gift tax exemption is permanent and indexed to inflation starting in 2027; therefore, unless Congress decides to act again, no further changes are forecasted for this critical tax exemption besides increases in the exemption amount to match inflation after 2025. However, when the composition of Congress changes, it is possible this exemption will be revisited since an exemption to estate taxes at this level is not universally supported. OBBBA was only narrowly enacted with a vote of 218-214 in the Federal House of Representatives, and a vote of 51-50 in the U.S. Senate, which required the Vice President to break what would have otherwise been a tie. While many things were in OBBBA besides estate planning provisions, the point remains that the largely positive opportunities for tax management that arise out of OBBBA will not necessarily be supported by a new Congress.
For now, however, individuals and couples that previously maxed out their lifetime exclusion amount can make plans to avoid taxes on another one or two million, respectively. Additionally, because currently some states have a separate estate tax and exemption amount (e.g., currently $3 million per individual in Minnesota or $6 million per couple with proper planning), there may be other important adjustments you can make to your estate plan to save on taxes. For example, under OBBBA there is continued opportunity for the $19,000 per individual ($38,000 per couple) in tax free gifting allowed annually under the federal gift exclusion.
Generation Skipping Transfer Tax Exemption
Second, the generation-skipping-transfer (GST) tax exemption has also increased from $13.99 million to $15 million. While often spoken of in the same breath as the unified estate and gift tax exemption, the GST tax exemption is a distinct exemption that may or may not apply at the same time as the unified estate and gift tax exemption. The GST exemption comes into play when a gift is made that skips generations such as when a grandparent leaves wealth to a grandchild or anyone at least 37.5 years younger than they are; this skip avoids a generation of estate taxes unless it exceeds the GST exemption and the special GST tax applies. For many though, the new $15 million GST exemption will be more than enough to transfer all the assets they want up to the new $15 million exemption across generations while avoiding at least the GST tax.
Qualified Small Business Stock Exemption
Third, for those who hold Qualified Small Business Stock (QSBS), there is more good news. Previously there was an exclusion from federal income tax for capital gains up to $10 million dollars from the sale of QSBS (usually stock acquired directly from an active U.S. ‘C’ Corporation of a “qualified small business”) if the owners had held them for at least five years (and acquired the stock between September 27th, 2010, and July 4th, 2025). If QSBS was acquired before September 27th, 2010, then the exclusion was 50% or 75% depending on the purchase date. Now the exemption cap is immediately increasing to $15 million for holdings acquired after July 4th, 2025, and there is a tiered system for achieving a minimum percentage of tax savings before the five-year benchmark has been achieved.
If QSBS is held for at least three years, then 50% of the gain may be excluded upon sale; if QSBS is held for at least four years, but less than five, then 75% of the gain may be excluded. So, now not only is there an option to exclude some capital gain taxes on the sale of QSBS held for less than five years, but the maximum exemption amount that can be sheltered increased from $10 million to $15 million. Starting in 2027, the $15 million exemption limit will be adjusted for inflation (but this will not affect those who have already maxed out the exemption with respect to a specific issuer). In some situations, a higher exclusion than $15 million may also apply based on an individual’s aggregate adjusted basis in the QSBS sold (up to ten times their aggregate adjusted basis).
Additionally, the definition of a “qualified small business” has been expanded under OBBBA so the gain exclusion applies to most active US ‘C’ Corporations who have less than $75 million in gross assets (a number that will increase with inflation in future years).
Tax efficient succession planning may be able to be accelerated and greater savings achieved because of these QSBS changes.
Charitable Giving
Fourth, OBBBA enacted a number of changes to the federal tax code concerning charitable donations which make careful estate planning for the philanthropically minded even more crucial. Starting for the 2026 tax year there is now a $1,000 federal income tax deduction available for each taxpayer ($2,000 for couples filing jointly) who donates to IRS recognized public charities and takes the standard deduction instead of itemizing. However, for those individuals who itemize, they must now donate an aggregate of at least 0.5% of their adjusted gross income to qualified charities to claim a charitable deduction. For example, this means a couple that makes $200,000 must now donate over $1000 to secure a charitable deduction on the amount over $1000 when itemizing on their tax return.
Corporate donations and charitable deductions under OBBBA are also semi restricted now with only contributions that exceed 1% of the company’s taxable income qualifying for an income tax deduction.
Large donors will be pleased that the maximum an individual may claim as a charitable deduction in a given tax year is now permanently set at 60% of their adjusted gross income (AGI). This amount was initially increased from no more than 50% of a taxpayer’s AGI for donations made to IRS recognized charities to 60% temporarily in 2017 by the Tax Cuts and Jobs Act. OBBBA has now made this change permanent.
Less positively for top earners, OBBBA limits the benefit taxpayers in the highest 37% tax bracket can receive for a charitable deduction to 35%; this is colloquially known as the “2/37ths haircut.” Effectively, this means that for a donor who gives $1000 to charity, only $350 of it will return to them as a tax reduction instead of $370 as would have been the case prior to the enactment of OBBBA.
These changes may encourage bunching donations together into the same year to achieve greater tax savings. Another, more sophisticated, way to avoid this loss of tax savings on major planned giving is to fund a donor advised fund (DAF) in 2025 before the new rules take effect in 2026. Funding a donor advised fund gives the donor an immediate tax deduction for 2025 under the pre-OBBBA existing rules and allows donors to then make grants out of the irrevocable trust to public charities for years to come while avoiding the new 2/37ths haircut on their charitable giving.
Alternatively, a person who has an income of perhaps $200,000 per year plus significant assets might benefit from the tax savings a non-grantor trust can offer under OBBBA. A non-grantor trust is a type of irrevocable trust made to benefit the grantor’s (creator’s) spouse, children, and/or charities. The grantor can fill a non-grantor trust with passive income creating investments; and because these assets are removed from the direct control of the grantor, the non-grantor trust is treated as a separate tax entity with a separate trust income tax scale. This can save the grantor money on income tax because the grantor remains eligible for the new $15,750 per person ($31,500 per married couple) standard deduction under OBBBA (these 2025 numbers are indexed to inflation). The grantor can also still limit their exposure to high trust income tax rates by distributions to children in lower tax brackets (children will pay taxes on distributions at their individual rates instead of the trust paying tax on the distribution) and donations to charity from the trust that are not subject to the 2/37ths haircut.
Conclusion
While most of the federal landscape regarding estate planning has remained unchanged after the enactment of OBBBA, notable changes have occurred. These changes make proper estate planning even more beneficial for those with larger estates. There is time to utilize both old and new tools while favorable law is available for estate planning. Maxing out the $19,000 annual federal gift exclusion will not reduce your new lifetime $15 million federal unified estate and gift tax exemption cap or lifetime $15 million GST exemption cap. Plan well with your QSBS stock sales and charitable giving to maximize tax savings. A general estate planning principle remains true after OBBBA-it is often best to reduce your taxable estate now via smart planning and the transfer of items that you expect to appreciate, in order to remove both the item and the future growth in value of that item from your taxable estate.
