The One Big Beautiful Bill Act and
What It Could Mean for Your Estate Plan

On July 4, 2025, President Trump signed into law the One Big Beautiful Bill Act (the “Act”). Below is a summary of the key components of the Act as it relates to estate and tax planning for our clients:

Permanent Increase of the Lifetime Gift, Estate, and GST Exemption.

Effective January 1, 2026, the Act permanently raised the federal estate, gift, and generation-skipping transfer tax exclusion amount to $15 million per person (an increase from the $13.99 million exemption amount in effect for 2025).  The exemption amount will continue to be indexed for inflation.

Other than the increased exemptions, the estate and gift tax system was largely left unchanged.  The tax rate remains at 40%.  The annual gift tax exclusion remains at $19,000 (as indexed for inflation).  Notably, the new law retains the step-up in basis at death, meaning heirs will still inherit appreciated assets at the asset’s fair market value on the deceased person’s date of death.

What Does This Mean for Your Estate Plan and What Should You Do Now?

For High Net Worth Families With Assets Well Above the Exemption Threshold

1. 1. Use Most or All of $15 Million Exemption Before any Future Legislation Reduces It. This large exemption increase may not be permanent, depending on post-2026 political control.  Further, tools in the estate planner’s toolbox, such as SLATs (Spousal Lifetime Access Trusts), Dynasty Trusts, Intentionally Defective Grantor Trusts (IDGTs), and Grantor Retained Annuity Trusts (GRATs) can efficiently transfer and protect wealth.  Previous administrations have attacked and tried to limit these tools, while the current administration appears less interested in such attacks.
   2. Transfer Minority interests in Closely-Held Businesses or Real Estate. For those with closely-held businesses or real estate, consider transferring minority interests using valuation discounts (which may not be available under future law) and using installments sales to grantor trusts to move appreciation out of the taxable estate.

For Estates Near the Exemption Threshold

1. 1. Irrevocable Life Insurance Trusts. Consider life insurance inside an irrevocable life insurance trust (ILIT) to pay potential estate taxes without increasing estate size while, at the same time, providing liquidity and creditor protection.
   2. Reduce or Eliminate Capital Gains Tax at Death. Take action to achieve a stepped-up basis on assets previously gifted to you. If you were given assets in an irrevocable trust that is excluded from your estate for estate tax purposes (i.e., Bypass Trust, gifting trust, generation-skipping trust), it is possible to modify that trust to provide a stepped-up basis on the trust assets at the death of person who gave you the assets (or potentially at your death).  The IRS has recently blessed the modification of such trusts to include formula clauses that achieve maximum basis step-up without causing an estate tax.  All irrevocable trusts should be reviewed to achieve these tax savings.
   3. Continue Making Annual Exclusion Gifts. Cash flow permitting, persons with estates near the exemption threshold should consider making annual exclusion gifts (i.e., $19,000 per person per year).

For Estates Well Below the Exemption Threshold

1. 1. No Material Gifting. Unless you expect your estate to grow above the current exemption, you should probably not engage in material gifting or wealth transfer now, unless you have non-tax reasons to do so (e.g., a child needs funds to help purchase a home or start a business, asset protection, etc.).  If you make a gift, the recipient takes your cost basis in the gifted asset for income tax purposes.  Consequently, unless the gift is made in a specially designed trust, the gifted asset will not receive a stepped-up cost basis for income tax purposes at your death.  Annual exclusion gifting is still probably wise if cash flow permits, as this benefit is forever lost if not utilized.
   2. Reduce or Eliminate Capital Gains Tax at Death. With estate taxes being unlikely, it is even more important to review all irrevocable trusts in which you are a beneficiary to ensure that you eliminate capital gains tax at the death of the person who gave you the assets (or potentially at your death).  All such irrevocable trusts should be reviewed.

For Everyone

Trusts and estate plans created under older exemption levels may need to be updated or revised.  Some clients may benefit from simplifying their plans, while others might choose to proactively use the large exemption.

Should you have questions about these topics or if you would like to review your estate plan, please do not hesitate to contact our office.  Generally speaking, it is wise to review your estate plan every few years.

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