Since the Tax Cuts and Jobs Act passed at the end of 2017, temporarily doubling the lifetime gift and estate tax exemption through the end of 2025, we've been reminding clients of the "sunset" scheduled to occur on January 1, 2026, that would reduce each person's exemption by 50%. During this time, many individuals and families have struggled to make decisions in light of the uncertainty. The uncertainty is now resolved.
President Donald Trump signed his One Big Beautiful Bill (the BBB) over the 4th of July weekend. The BBB has been quite a hot topic in recent months, and now that it has passed, we thought it would be helpful to provide a high-level overview of its tax implications, paying special attention to the gift and estate tax. The changes outlined below take effect on January 1, 2026.
What is the One Big Beautiful Bill?
The BBB is a tax cut and spending bill addressing almost all sectors. It addresses important issues such as immigration, Medicaid spending, military spending, and the focus on this update, the gift and estate tax. The full Bill is available here. We acknowledge that these can be sensitive topics, and opinions differ on the impact of legislation such as the BBB. However, as estate planning attorneys, we thought it most helpful to share the BBB's impact on estate planning.
How does the One Big Beautiful Bill affect the estate and gift tax system?
The BBB increased each person's gift, estate and generation-skipping transfer (GST) tax exemption (currently $10 million dollars per person, adjusted by inflation to $13.99 million in 2025) to $15 million dollars per person starting January 1, 2026, and adjusted for inflation going forward. The BBB made no change to the maximum estate, gift and GST tax rate which remains at 40%. Unlike the provisions in the 2017 Act, the BBB's estate and gift tax provisions are permanent and do not automatically sunset in the future.
Those of you who made gifts in anticipation of the sunset still achieve the benefits of the gifts you have made (protecting future growth from the estate tax and benefitting your beneficiaries). You will also have capacity to gift at least $1 million more starting next year. For those of you who have not used all of your current exemption, you can breathe a bit easier. The anticipated year-end sunset no longer imposes a rush to implement gifting strategies before year-end.
What additional tax reforms are notable in the One Big Beautiful Bill?
- Existing income tax brackets are permanent, with the highest tax bracket at 37%;
- The standard deduction for income tax purposes increases to $15,750 (up from $15,000 for the 2025 tax year) for single filers and $31,500 (previously $30,000) for married filing jointly;
- Increases the deduction for state and local taxes (SALT) deductions to $40,000 through December 31, 2029, with certain phaseouts for high earners;
- The qualified business income deduction (Section 199A) remains at 20%; and
- The holding period for Qualified Small Business Stock (QSBS) is reduced to 3 years (instead of 5) and each taxpayer (individuals and trusts) are granted a $15 million dollar exemption from gain (previously $10 million dollars).
What next steps should you consider?
Now that we have certainty about the estate, gift and GST tax exemption for now, our estate planning team is available to discuss what additional tax planning you should consider, if any, to complement the estate plan you have in place. There are many methods to utilize your exemption during life or plan for the most tax efficient approach at your death. We understand that with the passing of the BBB and the current climate across the globe, many of you may not be thinking about celebrating the increased exemption, and instead, may be concerned with the BBB's far-reaching implications across various sectors.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
