On July 4, 2025, President Trump signed the One Big Beautiful Bill Act (OBBBA) into law. This significant tax legislation extends several provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and provides for numerous tax changes affecting both individuals and businesses. While several changes are so-called permanent, a change in Congress and a new administration are likely to bring further changes. Here are key provisions that we think will be of interest to our estate planning clients:

Estate & Gift Tax Exclusion: The law raises the federal estate and gift amount from $13.99 million to $15 million per individual, indexed annually for inflation. The new law applies to taxable years beginning after December 31, 2025. The tax rate remains at 40%. The federal estate tax exemption between spouses remains portable meaning that a surviving spouse may utilize any unused portion of their deceased spouse’s federal estate tax exemption by filing a federal estate tax return following a spouse’s death and making the election. For married couples this change effectively allows up to $30 million to be transferred to loved ones free of federal estate tax.

GST Tax Exemption: The generation skipping tax (GST) exemption was likewise raised from $13.99 million to $15 million per individual, commencing in 2026, indexed annually for inflation after 2026. The GST tax exemption is particularly crucial for wealthy individuals aiming to transfer assets to beneficiaries more than one generation younger themselves such as grandchildren and great-grandchildren. Unlike the gift and estate tax exemption (which offers portability between spouses), any unused GST exemption is lost upon death. Therefore, it is especially important for individuals and married couples to plan how to use and not waste their respective GST exemptions.  

Planning Opportunities: The federal estate and gift and GST tax exemptions had been scheduled to expire on January 1, 2026, which would have resulted in the exemptions being reduced to $7 million. The higher exemptions provide more flexibility for individuals and create opportunities for strategic lifetime gifting to remove appreciating assets from one’s taxable estate.  The increase in exemptions is particularly beneficial for those who have already maximized their previous gift and GST tax exemptions, offering a renewed opportunity for multiple generation wealth preservation planning, particularly for clients with difficult to value assets as the increased exemptions provide a greater cushion in the event of audit.

Even with the higher transfer tax exemptions, tools like irrevocable trusts remain valuable for proving asset protection for loved ones, controlling how wealth is distributed to future generations, minimizing transfer taxes for future generations, and potentially achieving income tax efficiencies through use of non-grantor trusts, especially for individuals in high income tax states.

State Estate Taxes: For clients residing in states with a state-level estate tax it is important for them to review their estate plan with their estate planning attorney to determine how state estate taxes will impact their estate plan. The Massachusetts estate tax exemption of $2,000,000 remains unchanged and is not indexed for inflation. The Rhode Island estate tax exemption, presently $1,802,431, is increased each year by the rate of inflation. Connecticut’s estate tax exemption is currently aligned with the federal estate tax exemption meaning that for a Connecticut resident if an estate is large enough to be subject to federal estate tax, it will be subject to the Connecticut estate tax. Neither New Hampshire nor Florida has a state estate tax.  

For those clients who do not have a federally taxable estate but who live in a state that has a state estate tax, it is especially important to consider how certain lifetime gifts made to reduce state estate taxes may inadvertently increase the family’s overall tax liability upon the subsequent disposition of gifted assets. This is because non-retirement assets receive a step-up in cost basis to fair market value at your death, eliminating pre-death capital gains for your heirs who receive them.  

Considering the high federal estate and gift tax and GST exemptions, the focus for many clients will move from aggressive estate tax planning strategies to income tax planning, and specifically to “basis” planning strategies.  

State & Local Tax (SALT) Deduction: The law increases the SALT deduction to $40,000 for the 2025 tax year. The SALT cap is subject to 1% annual inflation increases beginning in 2026 and continuing through 2029, after which it reverts to the $10,000 SALT cap in 2030. The SALT cap is subject to a $500,000 income-based phaseout in 2025, indexed by 1% annual inflation beginning in 2026. The SALT cap would decrease by 30% of income over the phaseout threshold, but not below the prior SALT cap of $10,000.

The SALT deduction is available to non-grantor trusts, presenting estate planning opportunities to utilize the SALT deduction at the trust level to minimize fiduciary income taxes for the family as a whole. The strategy typically involves dividing assets (like real estate that generates significant property tax liabilities) among these trusts. This allows the property taxes paid by each trust to be deducted up to the applicable SALT deduction limit by that specific trust. This can lead to substantial federal tax savings, especially in high-tax states where state income and property taxes are high. By utilizing the SALT deduction at the trust level, the taxable income within each trust is reduced, thus lowering the fiduciary income taxes owed by the trust itself. Additionally, if the trust distributes income to beneficiaries, and the beneficiaries are in a lower tax bracket, the overall family tax burden can be further reduced. It’s crucial that these trusts are structured properly to avoid the IRS’s “multiple trust rule” under IRC §643(f). This rule states that if multiple trusts have “substantially the same grantor or grantors and substantially the same primary beneficiary or beneficiaries” with a principal purpose of tax avoidance, they may be treated as a single trust. To avoid application of the rule, it’s essential to designate different beneficiaries of each trust. Due to the complexity and potential pitfalls, it is important to work with your estate planning attorney and tax professionals before implementing such a strategy. They can ensure the trusts are properly structured, compliant with all regulations, and align with your overall estate planning objectives.

Qualified Small Business Stock (QSBS) Expansion: IRC §1202 allowed for an exclusion of income for up to $10 million in gain from the sale of QSBS that a non-corporate taxpayer holds for more than 5 years. The law is amended to increase the exclusion of income to $15 million, indexed annually for inflation beginning in 2026. The amended law provides for a “phase-in” schedule, allowing gain from QSBS held for at least 3 years to be 50% excludable, and allowing gain from QSBS held for at least 4 years to be 75% excludable. The amended law also increases the aggregate gross assets threshold from $50 million to $75 million. Stacking provisions (IRC §1202(h)) remain unchanged, allowing gift recipients of QSBS (i.e., individuals or trusts) to be treated as having acquired the QSBS in the same manner and having the same holding period as the transferor. Stacking allows each recipient of QSBS to claim their own exclusion from the sale of QSBS, presenting an opportunity for lifetime gifting strategies.

Enhanced Deduction for Qualified Business Income (QBI): The law extends the 20% deduction for QBI. The deduction for QBI is subject to several limitations: the deduction may not exceed 20% of QBI, but there are also limitations based on W-2 wages and capital investment, which phase in (or reduce the deduction) over a range of income above the threshold amount of taxable income. The law increases the phase-in income range from $50,000 to $75,000 for single taxpayers and from $100,000 to $150,000 for married taxpayers filing jointly. The law also provides for a minimum QBI deduction of $400 for taxpayers with at least $1,000 of QBI from one or more active businesses in which they materially participate.

Senior Personal Exemption: The law creates a new deduction of $6,000 for individuals aged 65 or older (married taxpayers filing jointly may claim $12,000 if both are aged 65 or older), effective for tax years 2025 through 2028. The exemption would phase out for individuals with modified adjusted gross income (MAGI) above $75,000 (MAGI above $150,000 for married taxpayers filing jointly).

Child Tax Credit: The law increases the base amount of the child tax credit to $2,200, effective in 2025, with annual inflation adjustments thereafter. The refundable portion of the credit remains at $1,700, and the credit is subject to the same income-based phaseouts ($200,000 to $240,000 for single taxpayers; $400,000 to $440,000 for married taxpayers filing jointly). The law adds a requirement for Social Security numbers to claim the credit.

Deduction of Charitable Contributions: The law provides for a new limitation on the charitable contribution deduction for taxpayers who itemize, by imposing a floor equal to 0.5% of the taxpayer’s contribution base (i.e., adjusted gross income (AGI)), beginning in 2026. Under the new law, individuals can only deduct contributions that exceed 0.5% of their AGI. The law also increases the deduction limit of charitable cash contributions from 50% of AGI to 60% of AGI.

Termination of Miscellaneous Itemized Deductions: The TCJA suspended miscellaneous itemized deductions from 2017 through 2025. The new law makes that suspension permanent, beginning in taxable years after December 31, 2025.

No Tax on Tips: The law implements a new code section (IRC §224) which provides for an above-the-line income tax deduction of up to $25,000 for qualified tips. The law defines “qualified tips” as cash tips received by an individual in an occupation which customarily and regularly received tips on or before December 31, 2024, as provided by the Secretary. The deduction begins to phase out for individuals with MAGI above $150,000 (MAGI above $300,000 for married taxpayers filing jointly). The deduction is reduced by $100 for each $1,000 by which the taxpayer’s MAGI exceeds the thresholds. To claim the deduction, the tips must be reported to the IRS and the taxpayer on an information return (i.e., W-2, 1099).

No Tax on Overtime: The law implements a new code section (IRC §225) which provides for an above-the-line income tax deduction for qualified overtime compensation of up to $12,500 ($25,000 for married taxpayers filing jointly). The law defines “qualified overtime compensation” as overtime compensation paid to an individual required under section 7 of the Fair Labor Standards Act of 1938 that is in excess of the regular rate (as used in such section) at which such individual is employed. The deduction begins to phase out for individuals with MAGI above $150,000 (MAGI above $300,000 for married taxpayers filing jointly). The maximum deduction is reduced by $100 for each $1,000 by which the taxpayer’s MAGI exceeds the thresholds. To claim the deduction, the qualified overtime compensation must be reported to the IRS and the taxpayer on an information return (i.e., W-2, 1099).

Auto Loan Interest Deduction: The law provides for an above-the-line income tax deduction of up to $10,000 for interest paid on automobile loans, beginning in 2025 through 2028. The law only applies to indebtedness incurred after December 31, 2024, for the purchase of an applicable passenger vehicle for personal use (i.e., car, minivan, van, sport utility vehicle, pickup truck, or motorcycle) that is assembled in the U.S. The deduction is subject to an income-based phaseout, which reduces the deduction by $200 for each $1,000 of MAGI in excess of $100,000 for individual taxpayers ($200,000 for married taxpayers filing jointly).

Trump Accounts: The law implements a new code section (IRC §530A), which creates a tax-advantaged savings vehicle, treated as an IRA under IRC §408(a), for minors under the age of 18. Contributors may contribute a maximum of $5,000 per year, adjusted annually for inflation beginning in 2028, to the account until the beneficiary reaches age 18. Contributions are not deductible and are not counted toward the contribution limits applicable to other individual retirement plans. The law also introduces the “Trump Accounts Contribution Pilot Program,” which provides a one-time $1,000 government contribution for each qualifying Trump account beneficiary (i.e., an individual born between December 31, 2024, and January 1, 2029, and who is a U.S. citizen).

Expansion of 529 Eligible Expenses: The law expands the types of expenses that qualify for tax-free distributions from 529 plans. It broadens the term “qualified higher education expenses” to include more costs associated with elementary and secondary education at public, private, and religious schools such as curricular materials, books or other instructional materials, online education materials, tutoring tuition, fees for certain tests, fees for dual enrollment in institutions of higher education, and educational therapies for students with disabilities. This provision applies to distributions made after July 4, 2025. The law also increases the annual limit on such expenses from $10,000 to $20,000 and applies to taxable years beginning after December 31, 2025.

These changes in the law require clients to continually review and assess their estate planning goals, including not only minimizing estate, gift and GST taxes but also income taxes, liquidity issues, complexities of probate, and preparing for potential incapacity. Even if your assets are below the federal estate tax exemption, clients should still review their plan to ensure they are considering how best to avoid or minimize state estate taxes versus income taxes following death and protecting their assets for their loved ones. In certain instances, there may be a greater focus on minimizing income taxes rather than minimizing state estate taxes. It’s also important to keep in mind that these changes are not necessarily permanent, and future changes to the estate tax regime are likely to occur.

Cameron & Mittleman, LLP
Estate Planning Department

Karen G. DelPonte, Esq.
Bridget L. Mullaney, Esq.
Lynn E. Riley, Esq.
Nancy F. Chudacoff, Esq.
Rory H. McEntee, Esq.

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