As published in the Independent Community Bankers of South Dakota quarterly magazine The Bottom Line, Volume 4 | 2025. Sign up for ICBSD e-news here.
It is a commonplace that death and taxes are life’s two certainties. Recently, however, the intersection of the two—the death tax (specifically, the federal estate tax)—has been the subject of much speculation. The One Big Beautiful Bill Act (hereafter, “OBBA”), signed into law in July, answers crucial questions about the estate and gift taxation of transfers in future years and creates new planning opportunities for business owners and families.
Federal tax law affords each U.S. resident a “basic exclusion amount” that he or she may transfer by lifetime gift or at death without generating gift or estate tax liability. From 2011 through 2017, the basic exclusion amount was $5 million, adjusted for inflation. The Tax Cuts and Jobs Act of 2017 (the “TCJA”) doubled this inflation-indexed amount, but only for tax years 2018 through 2025; the exclusion amount was slated to return to an inflation-adjusted $5 million in 2026. Thus, under the TCJA, an individual who had made no prior gifts could transfer nearly $14 million to her descendants without incurring estate or gift tax in 2025, but only roughly $7 million in 2026. The prospect of a reduced exclusion amount from 2026 onward prompted many business owners to consider substantial gifts of stock and other assets in 2025, to use as much of the heightened exclusion amount as possible before it expired.
The OBBA decreases the urgency of 2025 gifting for most taxpayers by permanently setting the basic exclusion amount at $15 million in 2026 and later years (subject to an inflation adjustment). The generation-skipping transfer (“GST”) tax exemption is likewise increased to $15 million. Beginning in 2026, with adequate planning a married couple can transfer up to $30 million outright or in trust for their descendants, tax-free. The OBBA’s $1 million increase in lifetime estate and gift tax exclusion and GST tax exemption amounts is also available for individuals who have already applied part or all of the current exclusion amount to earlier gifts. Consequently, even individuals who have previously maximized their tax-free gifting can take advantage of the increased exclusion and exemption amounts in future years.
The OBBA also implements numerous other changes relevant to estate planning, including:
- The current income tax brackets and rates for individuals, estates, and trusts become permanent. Under the TCJA, these brackets and rates were scheduled to expire at the end of 2025.
- The controversial state and local tax deduction limitation temporarily increases from $10,000 in 2024 to $40,000 in 2025, returning to $10,000 in 2030 and subsequent years.
- A new income-based rule reduces the income tax deduction available for charitable contributions made by taxpayers who itemize. Beginning in 2026, an itemizer’s income tax deduction for charitable contributions is allowed only to the extent those contributions exceed 0.5% of the taxpayer’s adjusted gross income.
- New qualified small business stock capital gain exclusion rules are adopted.
- More favorable rules will apply to 529 savings plans, health savings accounts, and ABLE accounts. A new category of tax-advantaged savings vehicle, the “Trump account,” is established to benefit minors.
New tax legislation typically motivates savvy families to revisit estate and succession planning and to consider how best to meet their goals in light of new constraints and opportunities. Given the impact the changes described will likely have, the OBBA should be no exception.
Davenport, Evans, Hurwitz & Smith, LLP, located in Sioux Falls, South Dakota, is one of the state’s largest law firms. The firm’s attorneys provide business and litigation counsel to individuals and corporate clients in a variety of practice areas. For more information about Davenport Evans, visit www.dehs.com.