Estate and Gift Tax: Higher Exemption – Made Permanent

One of the most consequential changes for wealthy individuals is the permanent increase in the estate and gift tax exemption. Under the TCJA, the lifetime exemption was scheduled to revert to roughly $7 million per person in 2026. The One Big Beautiful Bill Act prevents that sunset from occurring: beginning January of 2026, the federal gift, estate and generation‑skipping transfer (GST) tax exemption increases to $15 million per individual ($30 million for married couples) and will be indexed for inflation thereafter. The 40 percent estate tax rate and portability of unused exemption for surviving spouses remain unchanged. This new landscape will provide high-net-worth individuals with more clarity and time to consider wealth transfer and gifting strategies. Prior to the OBBBA, wealthy families were viewing the upcoming sunset of the 2017 TCJA as a looming deadline to create and fund irrevocable trusts before the end of 2025 (the most common of which being Spousal Lifetime Access Trusts or SLATs). While the urgency to act in the short term has been reduced by the permanent extension and increase of the lifetime exemption, there still is value in prioritizing gifting when it meets long-term objectives.

Planning Considerations:

• In cases where no lifetime exemption is remaining, additional exemption will become available to gift in 2026 (around $2 million for a married couple or $1 million for an individual) and annually thereafter with the increases for inflation. Additionally, annual exclusion gifts can be made without utilizing lifetime exemption ($19,000 per individual or $38,000 per married couple in 2025).
• Contributing assets into irrevocable trusts can “freeze” them for federal estate tax purposes. Qualifying assets may also receive valuation discounts for lack of marketability or minority ownership stakes, if certain conditions are met. Once the assets are contributed, all future growth occurs outside of the taxable estate. This is particularly beneficial for dynasty trusts designed to benefit multiple generations. However, it is important to note that these assets will not receive a step-up in basis at the death of the grantor.  
• Don’t forget about state estate taxes. Some states (Illinois, New York, Minnesota, and Maryland, to name a few) have their own estate tax with much lower exemption amounts than the federal estate tax exemption. The One Big Beautiful Bill Act does not change state estate taxes, so proper wealth and estate planning should address them as well.
• Whenever there is a big change in tax law, it is an excellent opportunity to review the current estate plan, trust and entity structure, roles and responsibilities, as well as key planning objectives. 
• Tax legislation is always subject to change. As a result, we must make the best decisions we can under the current circumstances, recognizing it is possible less favorable rates and provisions come into play for wealthy individuals in the future.

Income‑Tax Rates and Standard Deduction

What Stays the Same

The OBBBA makes permanent the lower income‑tax brackets introduced by the TCJA in 2017. The top marginal rate remains 37 percent for individuals, while the top long‑term capital gains and qualified‑dividend rate stays 20 percent. The 3.8 percent net investment income tax (NIIT) and 0.9 percent Medicare surtax remain unchanged.

The standard deduction is permanently increased to $31,500 for married filers ($15,750 for individuals) beginning in 2026. Personal exemptions remain eliminated. The child tax credit is enhanced to $2,200 per child, while the credit for other dependents increases to $1,100.

New or Revised Provisions

• Bonus deduction for Seniors 65 or older. A $6,000 deduction is available to individuals ($12,000 for married couples where both spouses are 65+) between 2025 and 2028. The deduction begins to phase out for Modified Adjusted Gross Income (MAGI) above $75,000 (single) or $150,000 (joint). It is fully phased out around $175,000 of MAGI for individuals and $250,000 for joint filers.
• The OBBBA introduces a new limitation on itemized deductions for high-income individuals in the top 37% bracket, effectively cutting their tax benefit to a maximum level of 35 cents for each dollar of itemized deductions. The value of itemized deductions is reduced by two‑thirty‑sevenths (2/37) of the lesser of (1) total itemized deductions or (2) the amount by which taxable income plus itemized deductions exceed the top‑bracket threshold.

SALT Cap and State Tax Strategies

The state and local tax (SALT) deduction remains capped, but the OBBBA raises the cap from $10,000 to $40,000 for tax years 2025–2029. The cap phases down for taxpayers with adjusted gross income (AGI) over $500,000 and reverts back to $10,000 in 2030. The pass‑through entity tax (PTET) workaround, which allows owners of pass‑through businesses to deduct state taxes at the entity level, is preserved. Individuals in high‑tax states should evaluate whether electing a PTET or bunching deductions (e.g., paying multiple years of property taxes in one year) can maximize benefits while the higher cap is available.

The SALT Phaseout Hidden “Iceberg”

Beneath the surface of the revised SALT rules lies a hidden phase‑out “iceberg”: that taxpayers with income between $500,000 and $600,000 need to watch out for. Incremental income above $500,000 effectively surrenders SALT deduction, resulting in a real marginal rate of 45.5% being applied. Income that is triggered electively (i.e. realized capital gains, Roth IRA conversions, etc.) in this danger zone can cause this unintended and negative tax implication. Over the next four years, disciplined tax management will be paramount.

*This summary table is for informational purposes only and illustrates the general impacts the interplay between additional income and the phasedown of the SALT deduction. 

“Trump” Accounts for Children

While not always central to high‑net‑worth planning, new savings vehicles may benefit younger family members. The OBBBA creates birth‑based custodial accounts (often called “Trump accounts”) for children under age 18. Contributions of up to $5,000 per child per year are allowed (non‑deductible), indexed for inflation; a federal pilot program may provide a one‑time $1,000 deposit for children born between 2025 and 2028. Contributions can also come from employers (up to $2,500). After the child turns 18, the account converts to a retirement account similar to IRAs. Families may use these accounts as part of wealth transfers to the next generations.

Charitable Giving Changes

Charitable strategies should be reviewed under the new rules:

Considerations for Business Owners

Qualified Business Income (QBI) Deduction

The bill permanently extends the 20 percent deduction for qualified business income under IRC §199A. The phase‑in threshold increases to $75,000 (single) and $150,000 (joint), and a minimum $400 deduction for active business income is established. These changes benefit owners of pass‑through entities. However, specified service businesses still face phase‑out rules at higher incomes.

Depreciation and R&D Expensing

The bill permanently restores 100% bonus depreciation for qualified property placed into service after 1/19/2025 and allows expensing of research and development costs up to 100%. R&D expenses can also be retroactively elected between 2021 and 2024. Section 179 expensing limits increase to an inflation‑adjusted $2.5 million (from $1.0 million). For families operating closely held businesses or rental properties, these provisions improve cash flow and enhance after‑tax returns.

Final Thoughts

The One Big Beautiful Bill Act is sweeping tax legislation that continues much of the 2017 TCJA while introducing important changes. For high‑net‑worth and ultra‑high‑net‑worth individuals and families, one guarantee is that OBBBA will make tax planning more complicated for years to come. Proactive review with your tax advisor, estate attorney and wealth advisory team is crucial to make sure you take full advantage of the new law while avoiding its pitfalls.