On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law. A major component of the OBBBA was to extend the 2017 tax cuts that were set to expire at the end of 2025, but several new tax provisions were also enacted. This article highlights practical strategies that taxpayers can employ to achieve income and estate tax savings based on the OBBBA.

The interplay of income and estate tax

When planning for estates subject to tax, a decision often needs to be made between income and estate tax savings. When lifetime gifts are made from an estate for estate tax purposes, the recipient (including irrevocable trusts created for the benefit of a donor’s family) takes the donor’s basis in the asset. At the donor’s death, the assets owned by the irrevocable trust do not receive a step up in basis. Conversely, assets owned by the decedent, including assets in the decedent’s revocable living trust, obtain a step up in income tax basis equal to the asset’s fair market value at the owner’s death. Under the OBBBA, the current $13.99 million estate tax exemption increases to $15 million in 2026 and then by inflation annually thereafter. These historically high exemption amounts mean a low number of estates will be subject to estate tax. For estates not subject to estate tax, income tax planning will be the primary concern.

Income tax strategies

The OBBBA either extended, modified, or made several income tax strategies more attractive. For an overview, see our Insight “13 Key Takeaways from the One Big Beautiful Bill Act.” Many of these strategies can also be used in conjunction with estate tax planning vehicles, such as trusts, to reduce both income and estate tax.

  1. Hold assets to death. Assets held until the owner’s death are included in the owner’s estate and obtain a step up in basis at death. For example, if the decedent purchased a stock for $100,000 that is worth $1 million at death, the decedent’s heirs can sell the stock for $1 million and pay no tax on the sale. Therefore, it might make sense for taxpayers with highly appreciated assets to hold the assets until death to wipe out any embedded capital gains.
  2. Use a charitable remainder trust (CRT). A CRT may be an option if a portfolio has experienced significant growth and the account owner is looking to diversify the portfolio to reduce risk. The benefits of creating a CRT are numerous: The donor receives an immediate income tax donation for the expected remainder interest that will pass to charity at the end of the trust term. The CRT can then sell the contributed asset without paying any taxes and reinvest the full proceeds into a diversified portfolio. The donor and the donor’s spouse, if any, receive an income stream from the CRT for life (or a term of years). A wealth replacement trust can be used in conjunction with a CRT to pass on tax-free proceeds to a donor’s family at the donor’s death. The value of the asset passing to charity from the CRT is replaced by the funds paid out to the donor’s family by the wealth replacement trust.
  3. Explore qualified small business stock (QSBS). If a taxpayer owns QSBS, they are eligible to exclude a significant amount of capital gains from taxation. Taxpayers owning QSBS issued before July 4, 2025, can receive $10 million (or 10 times the stock’s basis) tax-free. Taxpayers holding QSBS issued after July 4, 2025, can receive $15 million (or 10 times the stock’s basis) tax-free. In addition, the use of certain irrevocable trusts can be used to “stack” the tax-free benefits available from QSBS. Learn more in our Insight “How Business Owners Can Profit from Qualified Small Business Stock.”
  4. Use trusts to avoid state income tax. Taxpayers residing in states with high income taxes may be able to establish trust residence in a state with no state income tax and avoid the imposition of state income tax on the trust assets. A common technique is an incomplete non-grantor trust (ING). An ING allows a taxpayer to avoid state income tax when the ING assets are sold. For example, if a business owner sells their company stock for $50 million and the owner’s state of residence imposes a 7% income tax rate, the use of an ING could save up to $3.5 million in state income tax. California and New York have passed laws prohibiting the use of INGs by residents, so verifying that the strategy will work in your state is essential.
  5. Consider Opportunity Zones. Individuals or businesses that sell an asset or business that will result in significant capital gains might want to consider a Qualified Opportunity Zone Fund (QOZF). Starting in 2027, if capital gains from an asset or business sale are reinvested in an QOZF within 180 days, the capital gains tax liability from the initial sale can be deferred for five years. There is also a 10% income-tax basis step up when the five-year holding period is satisfied. Learn more in our Insight “Opportunity Zones Under the One Big Beautiful Bill Act.”
  6. Utilize swap power. Irrevocable grantor trusts have been used by many families to remove assets from the trust creator’s (i.e., the grantor’s) estate for estate tax purposes. A common technique to achieve grantor trust status is to allow the grantor to substitute assets of equivalent value with the trust (also known as “swap power”). A downside of a successful irrevocable grantor trust in which the trust assets appreciate rapidly is that the trust assets do not receive a step up in basis at the grantor’s death. One strategy to mitigate this is to use the swap power to take highly appreciated assets out of the trust before the grantor’s death and replace them with high-basis assets. The highly appreciated assets will now be included in the grantor’s estate and receive a step up in basis.
  7. Toggle grantor trust status. The OBBBA increased the state and local tax (SALT) deduction from $10,000 to $40,000 through 2029. For more information on the SALT deduction cap, see “‘Easter Eggs’ in the One Big Beautiful Bill Act.” Taxpayers that are generating unusable SALT deductions in their grantor trust may want to consider toggling off grantor trust status; many trusts allow grantor trust status to be toggled on or off. This will allow the trust to have its own $40,000 SALT deduction cap in addition to the grantor’s $40,000 SALT deduction cap.

Estate tax planning strategies

Despite the OBBBA preserving the historically high estate tax exemption amounts, some taxpayers’ estates will still be subject to estate tax. There is also no guarantee that the extension of the estate tax exemption amounts will remain under a future presidential administration. Therefore, the estate tax situation should be monitored; below is a hierarchy of planning options to consider.

  1. Use up the annual gift tax exclusion. A taxpayer can currently gift up to $19,000 per year ($38,000 for a married couple) to any number of individuals of their choosing without using up any of their estate tax exemption amount. A married couple with three married children and five grandchildren can gift $418,000 out of their estate every year while preserving their entire estate tax exemption amount. The use of annual exclusion gifts can be a valuable first step in the estate tax planning process, especially for estates that are getting close to the estate tax exemption amount.
  2. Use up the estate tax exemption amount now. For taxpayers with estate tax exposure despite the high exemption amount, gifting assets out of their estate now and using up part or all of the current estate tax exemption amount may make sense. Appreciation on the assets transferred out of the estate will grow free of estate tax, saving families 40 cents of estate tax on each dollar of growth. Common estate tax strategies used for this are spousal lifetime access trusts and dynasty trusts.
  3. Consider estate freeze techniques. Some taxpayers may have already used up their estate tax exemption amount or simply do not want to part with that much wealth. Taxpayers in this situation can consider an estate-freeze strategy. This strategy maintains the taxpayer’s current wealth but takes future appreciation of their assets out of their taxable estate. Common estate-freeze strategies include grantor retained annuity trusts and sales to intentionally defective grantor trusts.
  4. Do not ignore state estate taxes. Seventeen states and the District of Columbia impose state estate tax or state inheritance tax in addition to federal estate tax. The state estate tax exemption amounts range from $1 million to $13.99 million. If you live in one of the states that impose either state estate or inheritance tax, state estate tax mitigation may be required even if federal estate tax is not an issue.

The strategies highlighted above can be very effective but do not exist in a vacuum. Each person’s situation is different, and the estate planning strategies you choose must be considered as part of a comprehensive plan. For a review of your unique options and needs, please contact your Cerity Partners advisor or request an introduction.

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