Big Beautiful Bill is big news for estate planners

The One Big Beautiful Bill Act is big news for estate planners, an estate planning attorney said during a recent webinar.

“The big news for estate planners is, with the changes in the estate tax laws in OBBBA, we now have a stable law for the first time in decades,” said Robert Kirkland, founding member of Kirkland Hochstetler law firm, said during the webinar by the National Association of Insurance and Financial Advisors.

“We’ve had a rise in estate tax exemption amounts and lowering of rates in the past, but they always had sunset provisions,” he said. “The enactment of OBBBA in July is about as permanent as it gets.

“The good news is that now we can do planning and talk about a law that will be around for awhile.”

OBBBA’s estate and gift tax provisions make the higher estate and gift tax exemptions from the 2017 Tax Cuts and Jobs Act permanent. The exemptions had been scheduled to sunset in 2026.

“Although we all know that nothing borne in Congress is guaranteed to be permanent, it does feel positive to have some sense of stability in this area of the law for the first time in decades,” Kirkland said.

OBBBA permanently increases the federal estate, gift and generation-skipping transfer tax exemption to $15 million per individual, effective Jan. 1, 2026. The $15 million exemption will be index for inflation beginning in 2027.

For married couples, the combined estate and gift tax exemption will be $30 million in 2026. The exemption level had been set to revert to $7 million per individual at the end of 2025, so the new law “removes the uncertainty surrounding the exemption level,” Kirkland said.

“It takes [the exemption level] off the worry list for a lot of people.”

The GST exemption also increases to $15 million, although Kirkland cautioned that the GSP exemption is not portable between spouses.

Kirkland listed some planning implications for clients, including:

• Individuals and families with a net worth of more than $30 million can use the higher permanent exemption in OBBBA to create and update their estate plans, including gifting strategies, with more certainty.
• The bill eliminates the “use it or lose it” pressure to make large lifetime gifts before the end of 2025 to take advantage of the higher exemption.

OBBBA has several new tax deductions

OBBBA includes several new deductions that are set to expire after the 2028 tax year.

Taxpayers in certain tipped occupations can deduct up to $25,000 in tips, with an income-based phaseout beginning at $150,000 adjusted gross income for an individual and $300,000 for a married couple. IRS regulations state that automatically added tips do not qualify for the deduction. The IRS also specified a list of occupations that have customarily received tips, including restaurant workers, hair stylists and golf caddies.

Individuals can deduct up to $12,500 of qualified overtime pay with an income-based phaseout beginning at $150,000 AGI for an individual and $300,000 for a married couple.

A deduction of up to $10,000 for interest on a new, U.S.-assembled vehicle loan is available, subject to phaseouts beginning at $150,000 AGI for an individual and $200,000 for a married couple.

An extra deduction of $6,000 for individuals and $12,000 for a qualifying couple is available for taxpayers aged 65 and older. The deduction has an income-based phaseout beginning at $75,000 AGI for an individual and $150,000 for a married couple.

For 2025 through 2029, the cap on the state and local tax deduction is temporarily raised to $40,000, with a phaseout between $500,000 and $600,000 AGI. The cap will revert to $10,000 in 2030.

OBBBA increases the amount of money that can be distributed annually from a 529 plan for elementary and secondary school expenses up to $20,000 and expanded the types of expenses that can be paid. Kirkland said this is especially attractive to clients who have children or grandchildren and want to help them with educational expenses.

A mixed impact on charitable giving

Kirkland said the OBBBA has a mixed impact on charitable giving. OBBBA introduces incentives for donors who do not itemize deductions on their income tax returns. It also imposes new restrictions on high-income itemizers. The changes are designed to shift giving strategies, particularly for wealthy individuals, and may influence overall donation amounts and the timing of donations.

Effective in 2026, individuals who itemize their deductions or have a high AGI face new limitations that may disincentivize charitable giving. A new 0.5% of AGI deduction floor will be implemented. This means itemizers can deduct only the portion of their charitable contributions that exceeds 0.5% of their AGI. For example, a taxpayer who has $1 million in AGI must donate more than $5,000 to receive any tax benefit.

The value of charitable deductions for taxpayers in the highest income tax bracket (37%) will be capped at a 35% tax benefit. This raises the after-tax cost of giving for the wealthiest Americans.

Kirkland said that high-income earners are incentivized to “front-load” their charitable contributions into 2025 to maximize tax benefits before the new rules take effect. A common strategy is to “bunch” donations, combining several years of giving into one year to clear the new deduction floor.

He suggested advisors can ask their clients to consider using a qualified charitable distribution from their individual retirement account. if the client is age 70 ½ or older. An IRA holder age 70 ½ or older can direct their IRA provider to send up to $108,000 of their IRA to a qualifying charity each year. This transfer counts toward satisfying the required minimum distribution for the year but is excluded from the client’s taxable income, which can lower their overall AGI.

The majority of Americans take the standard deduction on their income tax return, and OBBBA creates a permanent new incentive for them to make charitable donations. Single filers who do not itemize can take a deduction of up to $1,000 for cash contributions while married couples filing jointly can deduct up to $2,000.

Kirkland said donating appreciated assets such as stocks remains a tax-efficient giving strategy. This allows donors to avoid capital gains tax and deduct the full market value of the asset, subject to AGI limits.

© Entire contents copyright 2025 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.