With the passage of the One Big Beautiful Bill Act (“OBBBA”) on July 4th, the scramble for high-net-worth families to use their “doubled” gift/estate exemption this year vanished. When the exemption amount was initially doubled by the Tax Cuts and Jobs Act of 2017, it was set to “sunset” on 1/1/26, creating a “use it or lose it” frame of mind for those with substantial estates. While early lifetime gifting always presents estate planning opportunities, the urgency to transfer significant wealth by this year end has now been allayed. Under the OBBBA, the gift/estate/generation-skipping exemptions will be set permanently at $15,000,000 per taxpayer (or $30,000,000 for married couples), effective 1/1/26. The exemption amounts will also index for inflation annually thereafter. There is no “sunset” associated with this new tax law. This presents the opportunity for significant wealth transfer during lifetime for the foreseeable future (although a future tax law could change the exemption amounts). As in the past, those who do not use their tax exemption during their lifetime will retain it to shelter their estate from estate tax at death. Bear in mind that those who have estates that are expected to exceed the exemption amount at death should continue to consider lifetime gift planning to mitigate expected estate taxes. The key to lifetime gift planning is removing the post-gift growth on the gift from exposure to estate tax. Our Firm is poised to assist you in creative ways of doing so. While the higher permanent exemptions made the biggest splash on the estate planning front, other changes under OBBBA deserve attention. One such change favors accelerating charitable gifts into 2025. Beginning in 2026, taxpayers who itemize deductions will only be able to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For example, if reported AGI is $500,000, the first $2,500 of charitable contributions will not be deductible. This change affects all taxpayers who itemize, regardless of income level, and it means that smaller or routine charitable gifts may no longer produce a tax benefit unless they exceed the threshold. The good news is the new 0.5% floor does not apply in 2025, making this year a unique opportunity to fully deduct charitable contributions without limitation. This is a strategic time to plan charitable giving. For this year-end planning, consider these strategies:
- Accelerate planned charitable contributions into 2025;
- “Bunch” several future years’ gifts so as to surpass the standard deduction threshold;
- Use a Donor-Advised Fund (DAF) to front-load future giving, receiving the deduction in the year of transfer of funds to the DAF;
- Donate appreciated securities to avoid capital gains tax on the sale;
- If over age 70 ½, utilize a direct “Qualified Charitable Distribution” of up to $108,000 this year to a “qualified” charity; this mitigates the loss of various tax benefits if instead the distribution is made to the IRA owner and then paid to the charity.
Another favorable OBBBA change will affect certain start-up owners of C corporation stock. Under prior law, if the stock meets the statutory definition for Qualified Small Business Stock (“QSBS”), capital gains tax can be mitigated on its sale. OBBBA generously expands the breadth of qualifying for this tax treatment in several ways, including the possible complete avoidance of capital gains tax. We encourage our clients to consult with income tax advisors to explore this expanded tax benefit. For estate planning attorneys and their clients, OBBBA offers a level of certainty that we have not had in decades by enacting an estate, gift, and GST exemption that does not come with an expiration date. We could be entering the new golden age of estate planning, and Farner & Perrin LLP stands ready to help.