In July 2025, federal tax planning for trusts and estates entered a new phase with the passage of the One Big Beautiful Bill Act (OBBBA). While much of the attention surrounding the legislation has focused on income tax changes for individuals and businesses, changes under this ACT have significant implications for trusts and estates, that require advisers to reconsider trust classifications, SALT caps, and income tax planning in wealth transfer plans.
This article provides a high-level look at OBBBA changes, introduces new planning considerations, and points out why trust and estate professionals should be paying close attention.
A Legislative Shift with Lasting Effects
At its core, OBBBA extends and modifies several provisions that were previously set to expire under earlier tax law. In some cases, the Act makes favorable provisions permanent; in others, it reshapes existing rules with new thresholds, limits, and conditions. For trusts and estates, the legislation is less about introducing entirely new concepts and more about altering the framework that planners have relied on for years.
The result is a landscape that offers additional flexibility—but also requires careful analysis of how different rules interact.
Higher Transfer Tax Exemption and Greater Certainty
One of the most notable outcomes of OBBBA is the permanence of the higher estate and gift tax exemption. Rather than allowing this exemption to revert to lower levels, the Act preserves the higher threshold and inflation adjustments.
From a planning perspective, this provides greater certainty for long-term estate plans and creates additional room to structure transfers without immediate transfer tax consequences. At the same time, the interaction between transfer taxes and income tax rules remains critical, particularly when trusts are involved.
Taxation of Non Grantor vs. Grantor Trusts
The Act heightens the importance of how trusts are classified for tax purposes. Strategizing using non‑grantor trusts presents attractive opportunities for income tax planning; however, certain trust actions can trigger grantor trust treatment and restrictions.
Rules governing trust aggregation—particularly where multiple trusts share the same grantors and beneficiaries—must be considered. If trusts are created or maintained primarily to avoid income tax, they may be treated as a single trust for federal income tax purposes. This makes drafting, administration, and intent especially important, as missteps can undermine anticipated benefits.
Changes Affecting Income Tax Deductions
OBBBA also revisits several income tax deductions that can affect trusts and estates:
- SALT deduction cap has increased to a remarkable $40,000
- Qualified Business Income (QBI) rules are expanded, with new minimum deductions and updated thresholds that apply not only to individuals but also to trusts and estates.
These changes offer new opportunities but also introduce additional layers of coordination between trusts, beneficiaries, and entity level planning.
Expanded QSBS Benefits—with Important Caveats
AI The Act modifies the rules governing Qualified Small Business Stock (QSBS) by increasing gain exclusion limits and adjusting eligibility thresholds. While this expands potential benefits, it also introduces new compliance considerations and heightened risk if trusts are used aggressively to multiply exclusions.
The distinction between grantor and non grantor trust status, as well as the timing and structure of transfers, can significantly affect whether QSBS benefits are ultimately respected.
Why the Full Context Matters
OBBBA does not operate in isolation. Many of its provisions interact with long standing doctrines—such as economic substance, assignment of income, and the step transaction doctrine —that continue to shape how trust and estate strategies are evaluated. For practitioners, the challenge is not simply understanding individual provisions but recognizing how they interact in real world planning scenarios.
Watch the Full Webinar
This article only scratches the surface of the changes introduced by the One Big Beautiful Bill Act. To explore these developments in greater depth—including how they affect trust structures, deductions, and long term planning—watch the on demand webinar, The Impact of OBBBA on Trusts and Estates, presented by Tim Harden, CPA, JD, LLM and Griffin H. Bridgers, J.D., LL.M. The full program provides detailed context, examples, and practitioner focused insights not covered here.
Interested in reading more? Fill out the form to read the full article.