OBBBA Shines on These Estate Strategies

The One Big Beautiful Bill Act (OBBBA) has opened new avenues for effectively managing your wealth for future generations.

Use Non-grantor Trusts

The OBBBA increase in the estate and gift tax exemption to $15 million gives you a greater opportunity to pass on your wealth without incurring substantial estate taxes. One way to do so is through non-grantor trusts, such as irrevocable trusts, charitable remainder trusts, special needs trusts, and spendthrift trusts. Unlike grantor trusts, which are taxed at the grantor's tax rate, non-grantor trusts can help you avoid higher tax liabilities on your investment income. So, you can potentially shield more of your estate from taxes while providing for your beneficiaries.

Take Advantage of Your SALT Deduction

Consider gifting an equal percentage of your home to multiple non-grantor trusts, which would benefit your children, for example. Each trust may be able to claim the full SALT deduction if the trust's income doesn't exceed the $500,000 point at which the deduction begins phasing back to $10,000. To be effective, the trust must generate sufficient income to claim the deduction. Also, placing assets in a non-grantor trust removes them from your estate. At your death, they won't benefit from the step-up in cost basis that would otherwise have applied.

Deduct Qualified Business Income

The Permanent 199A deduction is a boon to business owners, allowing them to deduct up to 20% of qualified business income. This dramatic reduction in taxable income can free up substantial funds to reinvest or allocate toward your estate planning efforts.

Exclude Capital Gains on Small Business Stock (QSBS)

You no longer have to wait five years to benefit from the capital gains exclusion on the sale of QSBS. For QSBS acquired after the bill's enactment, OBBBA Section 1202 provides a tiered capital gain exclusion based on how long you've held the stock. By leveraging this exemption, you can enhance your estate's value while strategically planning for the future.

Incorporating these strategies into your estate planning may not only help preserve your wealth but also ensure a smoother transition of assets to your heirs. Don't leave your legacy to chance. Take the time to strategize today by consulting with financial and legal professionals who understand the ins and outs of the OBBBA, which can help you to devise an estate strategy tailored to your circumstances.