Planning Suggestions for the Impact of OBBBA on Estate and Tax Planning

At a Glance

• Under H.R. 1, commonly known as the One Big Beautiful Bill Act, the increased federal estate tax exemptions may provide additional gifting strategy opportunities now and in the future.
• Some may consider reviewing their applicable income tax deductions, including the state and local tax (SALT) deduction and charitable deduction, with their overall planning goals.
• Some may wish to review the changes under H.R. 1 to the provisions for qualified small business stock and discuss appropriate planning to meet their goals.
• Some may wish to discuss with their attorneys and advisors how their estate and tax planning has changed under other provisions of H.R. 1.

H.R. 1, commonly known as the “One Big Beautiful Bill Act” (OBBBA or the Act) was enacted and signed into law on July 4, 2025, and includes a package of tax law changes, many of which may affect your estate and tax planning. 

Estate Tax Changes

Prior to the enactment of the OBBBA, the Tax Cuts and Jobs Act of 2017 (TCJA) increased the federal estate, gift and generation-skipping transfer tax exemptions (collectively referred to as the Federal Estate Tax Exemptions) to $10 million, annually indexed for inflation. In 2025, the Federal Estate Tax Exemptions are currently set at $13.99 million per person (or $27.98 million for a married couple, with proper planning). 

The OBBBA permanently (unless changed by a future Congress) increases the federal estate, gift and generation-skipping transfer tax exemption amounts; and as of January 1, 2026, the Federal Estate Tax Exemptions will be $15 million per person, annually indexed for inflation, or $30 million for a married couple. Thus, clients can use these increased Federal Estate Tax Exemptions during their lifetimes or upon their deaths.

Planning Suggestion: In preparation for the increased Federal Estate Tax Exemptions, some clients may consider additional gifting strategies prior to year-end. 

Individual and Business-Related Tax Changes

There are several other changes in the OBBBA that may affect clients on an individual and business-related level. 

We briefly summarize some of these key provisions below.

Increase of the State and Local Tax Deduction Limitation (the SALT Cap)

Beginning in 2025, the cap on the SALT deduction is temporarily increased to $40,000 for individuals and married couples filing jointly, increasing by a fixed 1% each year. Note that the increased SALT cap is phased out starting with modified adjusted gross income (MAGI) over $500,000 (but not reduced below a $10,000 SALT deduction), and this provision will sunset as of January 1, 2030 (pending additional congressional action), when the SALT cap will revert back to $10,000.

Planning Suggestion: Some clients may consider reviewing their eligibility to claim this SALT deduction with their planning goals. 

Permanent Extension of 20% Deduction for Pass-Through Business Income

Additionally, the OBBBA provides a minimal expansion to the deduction for owners of “specified service trade or businesses” (SSTBs) by increasing the income-based phase-out threshold and inclusion of a new minimum $400 deduction, each indexed for inflation. SSTBs under the OBBBA include private equity management companies and other investment or asset managers, accounting firms, consulting businesses, and medical practices.

Planning Suggestion: Some clients may wish to review whether their business qualifies as an SSTB and whether they may benefit from the increased threshold as well as review their entity structuring and tax classifications. 

Limitation of Itemized Deductions

The OBBBA modifies the limits of all itemized deductions to a 35% effective rate for taxpayers in the top marginal tax bracket. This replaces the “Pease limitation,” which had been previously suspended by the TCJA through December 31, 2025. 

New Floor on Below-the-Line Charitable Deductions

Starting on January 1, 2026, taxpayers who itemize will be limited to charitable deductions that exceed 0.5% of the taxpayers’ adjusted gross income (AGI). 

Planning Suggestion: Some clients may wish to discuss planning certain itemized deductions, including charitable contributions, to maximize the itemized deduction available for a given calendar year. 

Above-the-Line Charitable Deductions

For those taxpayers claiming the standard deduction, they can claim a deduction of up to $1,000 ($2,000 for those who are married filing jointly) for cash contributions to public charities. 

New Senior Citizen Deduction

A $6,000 above-the-line deduction is now available for certain taxpayers aged 65 and older ($12,000 for joint filers where both spouses qualify), phased out for incomes exceeding $75,000 for individuals and $150,000 for those who are married filing jointly. 

New “Trump Accounts”

New custodial accounts will be established automatically on behalf of eligible children (U.S. citizens born between January 1, 2025, and January 1, 2029). These accounts are treated in the same manner as individual retirement accounts under the Internal Revenue Code (subject to further investment eligibility requirements) and will be funded by the federal government with a one-time $1,000 seed contribution. After July 4, 2026, pre-tax contributions can be made to these accounts, up to $5,000 annually, and employers can contribute to accounts for dependents of employees in an amount up to $2,500 per employee.

Permanent Increase in the Cap on the Deductibility of Business Interest Expense

This increase is affected by changes to the computation of adjusted taxable income and the application of the cap on certain types of interest and international income.

Permanent Restoration of the 100% Bonus Deduction (Also Known as Bonus Depreciation)

Businesses may claim this new bonus depreciation for certain domestic manufacturing facilities put into service after January 19, 2025, with certain time limitations and exceptions.

Enhancements to the Capital Gains Tax Exclusion for Qualified Small Business Stock (QSBS)

For QSBS issued or acquired after July 4, 2025, Section 1202 of the Internal Revenue Code increases eligible capital gains tax exclusion per taxpayer to $15 million, now indexed annually for inflation, with a new 50% exclusion of eligible gain after only a three-year holding period and 75% exclusion after four years. Furthermore, the amended Section 1202 expands the eligibility requirements for businesses to qualify as a qualified small business by increasing the gross asset value cap to $75 million, now indexed annually for inflation, from $50 million.

Planning Suggestion: Some clients with QSBS may wish to discuss how these new provisions affect their business and personal planning. 

New Qualified Opportunity Zones (QOZ)

While capital gains deferred under the original qualified opportunity zones provisions will still be taxable as of December 31, 2026, the new provisions will receive a permanent extension with rolling five-year deferral cycles starting as of January 1, 2027, with new opportunity zones being designated every 10 years beginning in 2026, though with slightly more restrictive qualification criteria. 

Planning Suggestion: Some clients may wish to discuss their current and future QOZ funds, along with how these new tax provisions affect their personal and business goals. 

Untouched Provisions

Certain revenue-raising provisions were considered by the House of Representatives and the Senate, but were not ultimately adopted as part of the OBBBA. Specifically, among other items, the OBBBA:

• Does not change the tax treatment of carried interest paid to private equity fund managers
• Does not change the corporate or capital gains tax rates
• Does not create what was referred to as a new “millionaires” tax bracket
• Does not increase the ordinary income tax rates in effect under the TCJA
• Does not implement the proposed Section 899 “revenge tax”
• Does not contain provisions addressing SALT imposed on pass-through entities

Next Steps

In light of the clarity regarding the foreseeable future for the federal estate tax exemptions, clients should review their estate plans to confirm that their plans still reflect their dispositive intent considering their family dynamics, and should consult with their attorneys to review opportunities for optimal estate and tax planning.

As a reminder, certain states further implement their own state estate or inheritance taxes, which are predominantly unchanged following the passage of the OBBBA. Below is a summary of these provisions in the most common practice jurisdictions for our private client group:

Arizona 

• Arizona does not currently have a state estate or inheritance tax.

Florida

• Florida does not currently have a state estate or inheritance tax.

Illinois

• As of January 1, 2025, the Illinois estate tax exclusion amount is $4,000,000, which is a taxable threshold and not a credit against tax. Unlike the federal estate tax exemption, the Illinois estate tax exemption is not portable.
• Illinois does not currently have a state gift tax; however, any federal adjusted taxable gifts made during the decedent’s lifetime are included in the decedent’s taxable estate for purposes of the Illinois estate tax.

Indiana

• Indiana does not currently have a state estate or inheritance tax.

Wisconsin

• Wisconsin does not currently have a state estate or inheritance tax.

Minnesota

• The Minnesota estate tax exemption amount is $3,000,000. Unlike the federal estate tax exemption, the Minnesota estate tax exemption is not portable.
• Minnesota does not currently have a state gift tax; however, any federal adjusted taxable gifts made within three years of the decedent’s date of death are included in the Minnesota taxable estate.
• Nonresidents who die owning an interest in a pass-through entity (e.g., limited liability company, partnership or S-corporation) that holds assets with situs in Minnesota, such as real property in Minnesota, will be subject to Minnesota state estate tax at death.

New Jersey

• Since January 1, 2018, New Jersey no longer has a state estate tax.
• A New Jersey inheritance tax may be imposed on property transferred from a decedent to a beneficiary, depending on the relationship between the decedent and the beneficiary, the value and kinds of the property transferred, and whether the decedent died as a New Jersey resident or a resident of another state.
• New Jersey does not currently have a state gift tax; however, any federal adjusted taxable gifts made within three years of the decedent’s date of death may be subject to New Jersey inheritance tax (as presumed to be made in contemplation of death).

New York

• As of January 1, 2025, the New York estate tax exemption amount is $7,160,000. Unlike the federal estate tax exemption, the New York estate tax exemption is not portable.
• The New York estate tax rate is graduated, meaning that the amount in a New York taxable estate exceeding $7,160,000 will be taxed at increasing rates depending on the value of the amount in excess. Once the value of a New York taxable estate exceeds 105% of the New York estate tax exemption amount, the New York estate tax is assessed on the full value of such New York taxable estate at a rate of 16%. This is referred to as the New York estate “tax cliff.”
• New York does not currently have a state gift tax; however, any federal adjusted taxable gifts made within three years of the decedent’s date of death are included in the decedent’s taxable estate for purposes of the New York estate tax.

Pennsylvania

• Pennsylvania does not currently have a state estate tax.
• Property transferred from a decedent to a beneficiary (unless he or she is a surviving spouse or a child aged 21 or younger of the decedent, or such beneficiary is a charity) is subject to a Pennsylvania inheritance tax. The tax rates for this inheritance tax vary depending on the relationship between the decedent and the beneficiary.
• Pennsylvania does not currently have a state gift tax; however, any federal adjusted taxable gifts made within 12 months of the decedent’s date of death may be subject to Pennsylvania inheritance tax.

Even if you live in a state without an estate tax, but own property in a state with a state estate tax, such as one of such states listed above or Connecticut, Hawaii, Maine, Maryland, Massachusetts, Oregon, Rhode Island, Vermont, Washington, D.C., or Washington State, you may be subject to such state’s estate tax upon your death. Planning for such tax continues to be an important conversation with your private client attorney. 

For More Information

To discuss whether and how to update your estate plan, we recommend contacting your private client attorney.