Tax Changes And Planning Opportunities For 2026

As 2025 comes to a close, it presents a timely opportunity to review recent legislative developments and explore new planning opportunities that could enhance your estate planning and asset protection strategies for the year ahead.

One Big Beautiful Bill Act

This year we saw the passage of the One Big Beautiful Bill Act (OBBBA), which made permanent many of the provisions of the 2017 Tax Cuts and Jobs Act (TCJA) (previously scheduled to sunset on Jan. 1, 2026). The OBBBA has been the subject of our One Big Beautiful Act Analysis Series earlier this year.

For estate and tax planning, notable features of the OBBBA include:

• Permanently extending the elevated federal estate and gift tax exemption. The exemption will increase to $15 million in 2026 ($30 million for married couples) and will adjust for inflation each year.
• The estate and gift tax rates remaining at 40 percent for transfers during life or at death exceeding the exemption.
• The rules for basis step-up remaining unchanged, meaning assets owned by a decedent and included in their gross estate will receive a step-up in basis to the date of death fair market value.
• No increase to individual or corporate tax rates, change taxation of carried interest and incentive allocations, or eliminate the use of pass-through entity taxes to mitigate limitations on the deductibility of state and local taxes.

Gift, Estate and GST Tax Exemptions and Exclusions

As noted above, the lifetime gift and estate tax exemption amount will increase from $13.99 million per individual to $15 million ($30 million per married couple) in 2026. The generation-skipping transfer (GST) tax exemption will increase by the same amount.

The annual gift tax exclusion is unchanged. Individuals can give up to $19,000 per recipient—$38,000 for married couples—without using their lifetime gift and estate tax exemption. Gifts exceeding the exclusion limit to the same non-charitable recipient must be reported on a gift tax return (Form 709) and will use the donor's exemption for any amount over the exclusion limit.

The non-citizen spouse annual exclusion will increase from $190,000 to $194,000 in 2026. This annual exclusion permits a donor to transfer the specified amount to a non_-citizen spouse each year without consuming any of the donor's lifetime gift and estate tax exemption.

Planning Opportunities

OBBBA's extension of the existing TCJA provisions reduces the immediate pressure to use excess estate and gift tax and GST tax exemptions before year-end; however, it also creates valuable planning opportunities. Proactive individuals and families can strengthen their estate plans by considering strategies, such as making targeted lifetime gifts, funding trusts or transferring business interests to lock in favorable tax treatment. There are also several changes that should be considered to itemized deductions that may affect year-end tax strategy:

• SLATs and Other Irrevocable Trust Gifts: Married taxpayers with assets that have growth potential may benefit from freezing the value of those assets for estate tax purposes in a spousal lifetime access trust (SLAT). By using a SLAT, taxpayers can ensure that the appreciated asset passes estate and GST tax‑free to the beneficiaries. Irrevocable trusts can also include a "substitution power" which allows for the settlor to swap assets of equivalent value. This allows the settlor to reevaluate which assets are best held in the SLAT, by later swapping out assets that would benefit from a step up in basis at death for high income tax basis assets that will then pass tax free at death.
• Annual Exclusion Gifting: Taxpayers who have not yet used their annual exclusion may consider using their full annual gift tax exclusion amount before year-end. The 2025 exclusion allows a donor to transfer $19,000 per recipient and $38,000 if a split-gift election is made among spouses.
• Trump Accounts: Taxpayers with children below the age of 18 may consider creating and contributing to a "Trump Account" for their child. Any contribution must be made with after-tax dollars, and contributions are not deductible. Individuals may contribute up to $5,000 per child annually to these accounts, which grow tax deferred. The child can withdraw the funds after age 18 with any amount withdrawn beyond the amount contributed treated as ordinary income to the child. Further, taxpayers that had a child in 2025, or that have a child prior to Jan. 1, 2029, receive a $1,000 one-time government contribution to their child's Trump Account.
• SALT Deduction: Taxpayers that itemize and pay significant state income and property taxes may benefit from the increased state and local tax (SALT) deduction. OBBBA has increased the SALT deduction from $10,000 to $40,000, with the cap increasing by 1 percent annually through 2029. The cap will then revert to $10,000 in 2030. For individuals with adjusted gross income (AGI) over $250,000 or joint filers with income over $500,000, the deduction cap is reduced by $0.30 for every $2 of AGI over $250,000 or $500,000, as applicable.
• Charitable Deduction: Taxpayers may consider using the newly enacted above‑the-line deduction for charitable contributions and should be aware of the new floor for charitable deductions if they choose to itemize. Prior to OBBBA, taxpayers who claimed the standard deduction did not receive a federal charitable deduction, while itemizing taxpayers could deduct charitable gifts without an income-based floor (subject to existing AGI percentage limits). Under OBBBA, taxpayers who claim the standard deduction may now deduct charitable contributions above-the‑line, allowing up to a $1,000 deduction for single filers and $2,000 for joint filers that have made a cash contribution to a qualified public charity. However, taxpayers that choose to itemize are now subject to a .5 percent of AGI floor. For example, an individual with a $100,000 AGI that chooses to itemize would not receive a charitable deduction for the first $500 of charitable contributions made in the year. The cap on charitable deductions remains the same—individuals may deduct 60 percent of their AGI for cash gifts to qualified public charities.
• 2/37 Limitation: Taxpayers that are subject to the highest marginal income tax must now reduce their itemized deductions by 2/37 (about 5.4 percent). This limitation applies to all itemized deductions other than the itemized deductions for qualified small business income and SALT deductions.

The recent legislative changes highlight the importance of proactive and coordinated estate and income tax planning.

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.