Overview

On July 3, 2025, Congress passed the “One Big Beautiful Bill Act” (OBBB), officially designated as H.R. 1. This comprehensive federal legislation was signed into law on July 4, 2025, and makes permanent several provisions of the 2017 Tax Cuts and Jobs Act (TCJA), while expanding certain tax incentives.

From an estate and gift tax perspective, the most significant changes are:

• A “permanent” increase to the estate, gift and generation-skipping transfer (GST) tax exemption amounts.
• A substantial expansion of the capital gains exclusion for Qualified Small Business Stock (QSBS) under Internal Revenue Code § 1202.

Both developments present meaningful planning opportunities for wealth transfers, trust structuring, and liquidity events.

Estate, Gift and Generation-Skipping Transfer Tax: Exemption Made Permanent and Indexed

Prior law provided for a temporary increase to the estate, gift, and GST tax exemption amounts under the TCJA, with a scheduled sunset on January 1, 2026. Without legislative action, the exemption was set to decrease from $13.99 million (2025) to approximately $7.5 million per individual in 2026, often referred to as the estate, gift, and GST tax sunset.

The OBBB prevents the sunset and instead increases the exemptions to $15 million per individual ($30 million for married couples with appropriate planning and portability elections) effective January 1, 2026, and continues to index these exemptions annually for inflation going forward (starting in 2027). For assets transferred during life or at death with a cumulative value in excess of the exemptions, the marginal tax rate remains at 40% of the value over the exemptions.

Importantly, the increase is intended to be permanent and is not subject to a sunset provision under current law. While the elimination of the sunset is a welcomed development, clients should not assume that the higher exemptions will be available indefinitely. There is nothing in the OBBB that prevents a future Congress and Administration from reducing estate, gift, and GST tax exemptions. Given that possibility, the OBBB establishes a near-term opportunity for clients to take advantage of the higher exemptions to move assets and future appreciation on those assets out of their taxable estates.

Estate Planning Considerations

Given the scope of these changes, we recommend revisiting your estate plan to ensure it reflects the new exemptions and aligns with your objectives. Key considerations include:

Evaluate Lifetime Gifting Strategies

The increased exemptions create opportunities to implement or expand lifetime gifting. Planning strategies may include:

• Outright gifts or gifts in trust for children and future generations (dynasty trusts)
• Gifts and/or sales to Intentionally Defective Grantor Trusts (IDGTs)
• Spousal Lifetime Access Trusts (SLATs)
• Grantor Retained Annuity Trusts (GRATs)
• Charitable Lead/Remainder Trusts (CLTs/CRTs)

Reassess Existing Trust Structures

Trusts established under prior tax law—such as credit shelter, bypass, or marital trusts—may need to be revisited for both estate and income tax efficiency in light of the higher exemptions.

Review Potential Exposure to State-Level Estate Taxes

For residents of states which impose state-level estate taxes with exemption thresholds significantly lower than the federal amount, state-specific planning may still be required, even if your estate is no longer subject to federal estate tax.

QSBS: Major Enhancements to IRC § 1202 Exclusion

The OBBB significantly expanded the tax benefits for the QSBS exclusion, which provides for a partial or complete exclusion from federal capital gains tax on the sale of qualified small business stock.¹

The OBBB (1) introduced a tiered exclusion based on the holding period of the stock, (2) increased the per-issuer gain exclusion cap and (3) raised the gross asset threshold for qualification. These changes are effective for stock issued or acquired after the date of enactment of the OBBB on July 4, 2025.

The OBBB replaced the standard 5-year holding period requirement with a tiered system, which would result in the following income tax savings on $15 million of gain:

Holding Period	Applicable Exclusion %	Estimated Federal Income Tax Savings*
3 years	50%	($1,785,000 tax savings per $15 million of gain)
4 years	75%	($2,677,500 tax savings per $15 million of gain)
5+ years	100%	($3,570,000 tax savings per $15 million of gain)

*Assumes effective federal tax rate of 20% (long-term capital gains) plus 3.8% (net investment income tax)

The OBBB increased the per-issuer gain exclusion cap from $10 million to $15 million, which is indexed for inflation beginning in 2027. This means that investors can exclude gains on up to $15 million of QSBS per issuer. The existing 10x basis rule remains unchanged.

The OBBB increased the gross asset threshold from $50 million to $75 million, which is indexed for inflation beginning in 2027. This means that to qualify for QSBS treatment, a corporation must have gross assets under $75 million at the time of issuance and immediately thereafter. This change allows more companies to qualify as small businesses for the purpose of QSBS.

Planning Implications

The expansion of tax benefits for QSBS present several planning opportunities. Key considerations include:

Auditing QSBS Holdings and Prospects

Companies and investors should reassess whether stock qualifies (or could qualify) for QSBS when taking into account new asset thresholds and tiered exclusions.

Strategic Gifting of QSBS

Donors can gift QSBS to multiple irrevocable non-grantor trusts, thereby “stacking” the $15 million exclusion across trusts, provided that each trust is a separate taxpayer under Sec. 641(c) of the Internal Revenue Code (IRC) and maintains appropriate independence. However, in doing so, donors must be aware of Sec. 643(f) of the IRC which provides that two or more trusts are treated as one trust if (1) they have substantially the same grantor and primary beneficiary, and (2) a principal purpose of such trusts is the avoidance of tax.

Accelerated Liquidity Planning

The new tiered exclusion for stock held 3 - 5 years may incentivize earlier exit strategies.

Next Steps

We encourage you to review your estate plan to ensure it takes full advantage of the increased federal exemptions and remains well-aligned with your goals. If you are a business owner who is considering a sale or have an upcoming liquidity event, we recommend that you evaluate whether your business is eligible for federal and/or state QSBS exclusion(s) and whether there are planning options ahead of a sale or liquidity event. 

Our estate planning team is available to assist you in navigating these changes and identifying appropriate next steps. Please contact us at your convenience to arrange a consultation or if you have any questions about the new law and its implications.

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