The One Big Beautiful Bill Act (“OBBBA”), signed by President Trump on July 4, 2025, includes provisions which impact estate planning. Here are a few of the highlights:
Estate, lifetime gift and generation-skipping transfer taxes
For 10 years we have had countless discussions with clients about the looming reduction in the federal estate tax exemption, referred to as the “sunset.” The discussions centered around ways to use the exemption before its reduction by half on Jan. 1, 2026. The estate tax landscape is indeed shifting on Jan. 1, but not necessarily in the way our industry anticipated.
The OBBBA includes a permanent and expanded increase to the federal estate tax exemption, with similar changes to the federal gift and generation-skipping transfer (“GST”) tax exemptions. On Jan. 1, 2026, the federal unified lifetime gift and estate tax exemption will increase from its current $13,990,000 per person to $15,000,000 per person and the federal GST tax exemption will increase from its current $13,990,000 per person to $15,000,000 per person. Starting Jan. 1, 2027, these new exemption amounts will be adjusted annually for inflation. Before the OBBBA, each of these exemptions was scheduled to be reduced to about $7,200,000 per person on Jan. 1, 2026. These changes are permanent unless a future Congress reverses them with new legislation. The estate, gift and GST tax rates remain at 40%.
For the overwhelming majority of American households, these changes will mean nothing. However, for high-net-worth individuals, these changes are transformative. Some will be relieved to have the pressure to utilize the high exemptions via lifetime gifting before the end of the year lifted, while others may welcome the opportunity to transfer more wealth to the next generation and to future generations. Some who have already made substantial gifts in anticipation of the sunset may want to explore ways to unwind the gifts and take back the gifted assets. Tried and true strategies like grantor retained annuity trusts, defective grantor trusts and dynasty trusts remain useful, but weighing the benefit of estate tax reduction against the loss of the income tax basis step up at death is crucial and complex.
The determination of the annual exclusion gift amount (currently $19,000 per person per year), the basis “step-up” at death, and the spousal portability rules all remain unchanged under the OBBBA. These important features benefit just about everyone, so regardless of one’s net worth, estate planning remains essential.
Trump accounts
Another key feature of the OBBBA is the “Trump account” pilot program. A Trump account is an IRA-style investment account for children born between Jan. 1, 2025, and Dec. 31, 2028, seeded with a gift from the federal government of $1,000. The account assets will appreciate on an income tax deferred basis, but no funds may be withdrawn prior to the child’s 18th birthday. When the child turns 18, the account converts to a traditional IRA with special rules allowing for distributions to the child for education, training programs, a home purchase and small business start-up costs. At age 25, the child can withdraw the entire account for these approved purposes only; at age 30, the child can withdraw the entire account for any purpose. The accounts will grow on a tax-free basis, but qualified withdrawals will be taxed at the rate applicable to long-term capital gains (as opposed to ordinary income). The account assets may only be invested in certain types of mutual funds or ETFs. Until the child turns 18, a parent or others may gift to the child’s account up to $5,000 per year, using a portion of the annual exclusion. Some employers have already agreed to match the government’s $1,000 investment for the qualifying children of its employees, and these matching funds will not be treated as taxable income to the parent.
Expansion of 529 plans
The OBBBA also expands the utility of the beloved, tax-advantaged 529 education savings account. Starting in 2026, authorized payments for K-12 education costs will increase from $10,000 per year to $20,000, homeschooling expenses will be authorized, as well as tutoring expenses, testing fees, vocational education expenses, credentialing programs and continuing education costs. For families with a special needs child, the ability to roll over a 529 account to an ABLE account will become permanent. Note that 529 plans are established under the purview of a state-sponsored plan, so be sure to check the state rules of your 529 plan as well – it may take some time for the state laws to conform to these federal changes.
Jean M. Kohler, Esq. and Victoria Kaempf, Esq. are attorneys-at-law with the Kohler Legacy Law Group, PC, in Los Altos. For more information, call (650) 475-0209 or visit kohlerlegacylaw.com.
