Estate Planning and the shift in focus under the new One Big Beautiful Bill Act

The One Big Beautiful Bill Act (OBBBA)—officially H.R. 1 of the 119th Congress—was introduced on May 20, 2025, and signed into law on July 4, 2025 as Public Law 119-21, and made sweeping changes to our federal tax code.

Estate Tax Implications: The Core Changes

Permanently Elevated Exemption Levels

One of the most impactful estate planning shifts under OBBBA is the permanent extension—and increase—of the federal estate, gift, and generation-skipping transfer (GST) tax exemptions:

• As of 2025, the exemption stood at approximately $13.99 million per individual (~$27.98 million for married couples).

• Starting January 1, 2026, OBBBA raises this to $15 million for individuals and $30 million for married couples, with provisions to index those figures for inflation moving forward.

Broader GST Rules

The GST exemption now aligns with the basic exclusion amount and is similarly indexed for inflation, though unlike estate and gift exemptions, it remains non-portable between spouses.

Many families will save significant taxes with the new higher estate tax exemptions starting in 2026.

Why Estate Plans Should Be Reviewed After OBBBA: Income Tax, California Property Tax Opportunities, and Portability

The One Big Beautiful Bill Act (OBBBA) changed the landscape of federal estate tax planning by permanently raising and indexing exemption levels. But while many families may now fall outside the reach of federal estate tax, this shift makes it even more important to revisit estate plans with a focus on income tax efficiency, California property tax rules, and portability.

1. Income Tax Considerations

With higher estate tax exemptions, fewer estates will be subject to federal transfer taxes, making income tax planning—especially capital gains management—more critical. For example, lifetime gifting strategies designed solely to remove assets from a taxable estate may now inadvertently deprive heirs of a valuable step-up in basis at death. For California families with appreciated real estate, securities, or business holdings, ensuring that assets pass in a way that maximizes basis adjustments can significantly reduce long-term income tax exposure.

Using Trusts to Maximize the $40,000 SALT Deduction Under OBBBA

One of the less-discussed but highly significant provisions of the One Big Beautiful Bill Act (OBBBA) is the change to the state and local tax (SALT) deduction. Beginning in 2026, individuals are permitted to deduct up to $40,000 of state and local taxes paid, a sharp increase from the $10,000 cap imposed under prior law. Unlike the old cap, which applied per tax return, the new $40,000 limit applies per taxpayer—creating a planning opportunity for families with significant state income or property taxes.

How trusts fit in: Because non-grantor trusts are treated as separate taxpayers for federal income tax purposes, each properly structured trust is entitled to its own $40,000 SALT deduction. This means that high-tax-state residents—particularly those in California, New York, or New Jersey—may benefit from using multiple trusts to “stack” SALT deductions across different entities.

For example, a family with $120,000 of California property and income taxes could:

• Claim $40,000 on their personal return,

• Allocate another $40,000 to a non-grantor trust for one child, and

• Deduct an additional $40,000 through a second non-grantor trust for another child.

  
  

This layering of deductions could effectively restore much of the SALT deductibility that high-net-worth taxpayers lost under the old cap.

Key considerations:

• Trusts must be genuinely separate and valid under state law; “cookie-cutter” trust creation without substance risks IRS scrutiny.

• Non-grantor trusts can trigger compressed income tax brackets, so careful coordination with overall tax strategy is essential.

• State-specific rules—especially in California—must be factored in to avoid unintended tax results.

2. California Property Tax Rules (Propositions 13 & 19)

California’s unique property tax regime introduces additional opportunities and risks. Under Proposition 13, property tax assessments are generally capped at 1% of assessed value with limited annual increases, creating a strong incentive to preserve low tax bases. However, Proposition 19 (effective 2021) dramatically narrowed the parent-child exclusion, meaning that most transfers of real property between generations now trigger reassessment at current market value—often leading to substantially higher property taxes.

Strategic planning tools can help, such as:

• Using co-tenancy ownership followed by joint tenancy ownership or LLCs to hold family real estate and evaluate transfer timing.

• Weighing whether to retain highly appreciated property until death to secure both a step-up in income tax basis and continuity of property tax assessment.

• Exploring lifetime transfers of a family residence within Prop 19’s limited exclusions, if children intend to occupy the property as a primary residence.

  
  

3. Filing for Portability

Even if a family’s wealth today falls well below the current $15 million per-person exemption (or $30 million for a married couple), future growth in asset values or potential future legislative changes could make the preserved exemption extremely valuable. Without timely action, however, a deceased spouse’s unused exemption is lost forever.

Filing for portability requires submitting an estate tax return (Form 706) within nine months of death (with an available six-month extension), or potentially 5 years depending on the estate size. Even if no estate tax is owed, making the election preserves what is known as the Deceased Spouse’s Unused Exemption (DSUE), effectively doubling the surviving spouse’s future transfer tax shield.

 Even in a world of elevated exemptions, portability is important for three key reasons:

1. Future Uncertainty – While OBBBA makes the higher exemption permanent under current law, no tax law is ever truly permanent. Preserving the DSUE offers valuable insurance against future reductions in the exemption.

2. Wealth Growth – Families with assets below the current thresholds may still see significant appreciation in real estate, investments, or business interests. Portability ensures those future gains remain sheltered.

3. Flexibility in Gifting and Trusts – A surviving spouse who has preserved the DSUE can make tax-free lifetime gifts, fund trusts, or engage in advanced wealth transfer strategies with far more flexibility.

Given that the cost of preparing and filing Form 706 is typically modest compared to the potential tax savings, portability has become a cornerstone of prudent estate planning.

Bottom line: 

OBBBA provides relief from estate tax concerns for many, but it also shifts the spotlight toward income tax efficiency and California property tax optimization. And, if there has been a death in a family with these new high exemptions in place under OBBBA, then filing for portability could be critical. A careful review of your estate plan with these factors in mind could unlock significant savings for your family.