The beginning of 2025 marked an uncertain year for estate tax planning purposes. With the estate tax exemptions set forth by the 2017 Tax Cuts and Jobs Act scheduled to expire at the conclusion of the year, there was much ambiguity and angst regarding the need for planning for a drastic reduction in the federal estate tax exemption (set to decrease from $13.99 million per person to approximately $7 million per person as of January 1, 2026). As a result, we saw an influx of clients looking to complete major gifting through the use of advanced planning techniques.
This all changed when the One Big Beautiful Bill Act (the “Act”) became law on July 4, 2025. Within its 870 pages there are numerous provisions that may affect your estate and tax planning goals. As we approach the effective date for some of the changes, we have prepared the following summary of some of the provisions, as well as law that remains unchanged, for you to consider when reviewing your estate plan and planning for filing tax returns in 2026 and beyond.
Estate Tax Planning
- The Federal unified estate and gift tax exemptions that were set to expire at the end of 2025 have been increased by the Act to $15 million per individual beginning on January 1, 2026, with further annual increases for inflation each following year beginning in 2027.
- The Internal Revenue Code (the “Code”) still allows for portability elections by a surviving spouse.
- The generation skipping transfer tax (GST) exemption will remain equal to the estate and gift tax exemption and will also be indexed for inflation, but is still not eligible for a portability election.
- The estate, gift, and GST tax rates remain at 40%.
- These exemption amounts are now “permanent” in the sense that they do not have a built-in expiration the way that was set forth under the 2017 Tax Cuts and Jobs Act, but they of course could be changed by another act of Congress.
What this means for your estate plan
- The increasing federal exemption amounts may affect you in different ways. If you have already completed major gifting or created irrevocable trusts to use your entire exemption amounts during your lifetime, you may wish to add the increased amounts to these trusts.
- If your estate exceeds $15 million, either individually or as a married couple, please feel free to reach out to find out whether your existing plan meets your needs or if additional planning is advisable. If your estate does not exceed $15 million and you currently are a married couple with an estate plan that involves two revocable trusts, we would be happy to discuss with you whether you should consider simplifying your plan into a single trust.
- Please note that Vermont has a separate estate tax exemption of $5 million per individual, which means that a two trust estate plan may be advisable for married couples residing in Vermont with estates that exceed $5 million. New Hampshire does not have a state level estate tax.
- Asset titling and beneficiary designations:
- Accomplishing your estate planning goals requires more than creating estate planning documents. It is key that your assets are titled properly and that beneficiaries have been designated to implement your probate avoidance, tax planning, and distribution goals. In light of changes in the tax laws and that personal circumstances change from time to time, we recommend that you revisit your plan periodically.
Charitable Giving
- Income tax deductions for itemizers and non-itemizers:
- Beginning in 2026, charitable deductions for individuals who itemize their deductions will only be allowed to the extent that they exceed 0.5% of the tax payer’s adjusted gross income (AGI). As a result, individuals who itemize their deductions and are considering making a significant charitable donation in the near future might consider making the contribution in 2025 rather than in 2026 or later to maximize their deduction. Beginning in 2026, individuals should consider timing charitable gifts to align with years when then have a lower AGI.
- Non-itemizers will qualify for a $1,000 deduction (or a $2,000 deduction for those who are married and filing jointly) starting in 2026, but only for cash contributions directly to charitable entities. Contributions to donor advised funds and other such entities do not qualify for this deduction – such contributions can only be considered for deductions if you itemize your deductions.
- Charitable Contribution Deductions for Non-Grantor Trusts and Estates:
- The Act repealed Section E of Rule 68 of the Code, meaning that beginning in 2026, non-grantor trusts and estates that are entirely payable to charities may now have to pay income taxes to a certain extent. Ultimately, the changes surrounding this provision require further clarification by Congress. Until such clarification comes, if you are the executor or trustee of such an estate or trust, please be sure to work with an experienced tax professional when filing annual returns.
If you have any questions or would like to revisit your estate plan, please feel free to reach out to DRM’s estate planning team.
