2025 Year-end planning for estate and gift tax

As 2025 draws to a close, we reflect on this year’s key developments that will affect gift and estate tax planning in 2026 and beyond. The most significant development was the passing of the One Big Beautiful Bill Act (OBBBA) (P.L. 119-21) on July 4, which extended – and in some cases enhanced – key provisions of the Tax Cuts and Jobs Act (TCJA). Additionally, finalized regulations and recent court decisions provide useful guidance. Below is a summary of the changes and the corresponding planning opportunities.

Higher exemptions

OBBBA permanently increased the gift, estate and generation-skipping transfer (GST) tax exemptions to $15 million per person in 2026, with annual inflation adjustments thereafter. This represents a roughly $1 million increase from 2025. High-net-worth individuals should consider using this additional amount through lifetime gifts, as even “permanent” provisions can be changed by future legislation.

Lifetime gifts not only use the available exemptions but also remove future appreciation from an individual’s taxable estate. The impact of lifetime giving can be enhanced by giving hard-to-value assets, such as closely held business interests, which may qualify for valuation discounts under current law.

Using trusts for income tax planning

As gift and estate tax exemptions grow, income tax planning becomes increasingly critical. Non-grantor trusts, which are treated as separate taxpayers, can be used to optimize both the state and local tax (SALT) deduction and qualified small business stock (QSBS) gain exclusion. Both provisions were favorably modified by OBBBA.

Maximizing the SALT deduction

• The OBBBA temporarily increased the cap on SALT deductions to $40,000 ($20,000 for married filing separately). This deduction begins to phase down for taxpayers with modified adjusted gross income in 2025 exceeding $500,000 ($250,000 for married filing separately). Beginning in 2026, both the cap and the phase-down thresholds increase by 1% annually through 2029. The cap reverts back to $10,000 in 2030.
• Because each non-grantor trust is entitled to its own SALT deduction, individuals can multiply the deduction by creating multiple non-grantor trusts. For example, a person with three children could transfer real estate interests into three separate non-grantor trusts, one for each child, and effectively triple the SALT deduction. This strategy may also help avoid the thresholds that trigger phasedowns. Consider, however, that the increased SALT deduction is set to expire at the end of 2029, which could make this strategy less appealing for some taxpayers.