The One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025, has brought major changes to estate planning. Most notably, a permanent increase in the federal estate, gift, and generation-skipping transfer (GST) tax exemptions to $15 million per person, indexed for inflation. This change is effective for gifts made after December 31, 2025, so prior to that date the exemption is still $13.99 million per person. While the estate and gift exemptions are portable between spouses, the GST exemption is not, making proactive planning essential to preserve multigenerational wealth.
A New Era of Certainty
For years, estate planners worked around sunset provisions and shifting exemption amounts. OBBBA changes that. With the higher exemption, lifetime gifts are more powerful than ever. Any completed gift removes the asset—and all future appreciation—from your taxable estate. One of the best ways to do this is through an irrevocable trust, which adds control, protection, and flexibility.
Why Irrevocable Trusts Still Matter
Irrevocable trusts remain a cornerstone of estate planning. They let you transfer wealth while controlling how and when beneficiaries receive it. With the increased exemption, you can make larger gifts if you can afford to without triggering federal estate tax. Properly structured trusts can also take advantage of GST planning, allowing assets to grow and compound outside the transfer tax system for multiple generations.
The New York Estate Tax Cliff
New York’s estate tax exemption is much lower than the federal amount—$7.16 million in 2025. If your estate exceeds that threshold by more than 5%, you lose the exemption entirely and the full estate becomes taxable. Lifetime gifts can help reduce your taxable estate and avoid the cliff. But timing matters: New York has a three-year clawback rule, meaning gifts made within three years of death are pulled back into the estate.
Grantor vs. Non-Grantor Trusts: Key Differences & Planning Opportunities
Grantor Trust
With a grantor trust, the person who creates the trust (the grantor) pays the income tax on the trust’s earnings. While this may seem like an extra cost, it’s a powerful wealth-transfer strategy: paying the tax personally reduces the grantor’s taxable estate without an additional gift, while the trust assets grow without being diminished by income tax.
Non-Grantor Trust
A non-grantor trust is its own taxpayer and files its own return. This structure can provide several advantages, but care must be taken to avoid creating multiple trusts with similar terms solely to “stack” benefits—the IRS can treat substantially similar trusts as a single trust, negating the intended advantages.
- State and Local Tax (SALT) Deduction: OBBBA temporarily caps the SALT deduction at $40,000 per trust return for tax years 2025-2029, and is set to revert back to $10,000 in 2030. The deduction begins to phase out at $500,000 of income, making trust structuring a valuable planning tool for high-income families.
- Business Income Deduction: The 20% deduction for qualified business income is now permanent, offering long-term planning certainty for trusts that hold business interests.
- Qualified Small Business Stock (QSBS): OBBBA expanded QSBS benefits for stock issued on or after July 5, 2025, which can make trust ownership attractive for families planning a future sale of qualifying stock.
- State Income Tax Planning: In some cases, trusts can be structured to avoid state-level trust taxation by meeting specific trustee, situs, and sourcing requirements.
- Charitable Giving: Trusts can make charitable gifts if the trust document allows it, potentially reducing taxable income while supporting philanthropic goals. Even better, trusts’ charitable deductions aren’t limited by any AGI thresholds an individual would have.
Choosing between these structures depends on your overall goals and tax profile, balancing both estate and income tax considerations. Any gifting, whether to an individual or to an irrevocable trust, has “carry-over basis’ That means the recipient gets the donor’s cost basis, not the stepped-up basis it might’ve had if it were inherited from their estate. Both estate tax and income tax implications need to be considered when deciding to gift.
Navigating New York’s Trust Residency Rules
New York determines whether a trust is a resident trust based on the grantor’s residency -not the trust’s situs- at the time the trust became irrevocable (or at death, if created under a will). If the grantor was a New York resident at that time, the trust is considered a New York resident trust.
However, being classified as a resident trust does not always mean the trust pays New York income tax. A resident trust can qualify as exempt if it meets all three conditions:
- No New York trustees
- No New York situs property
- No New York source income
If the three conditions are satisfied, the trust itself is not subject to New York income tax. However, distributions to New York beneficiaries may still be taxable, as they carry out both current-year income and any accumulated income from prior years (due to New York’s “throwback tax” rule).
Final Thoughts
OBBBA creates a more stable environment for estate planning, but state-specific rules and income tax considerations still matter. Whether you’re considering lifetime gifts, evaluating trust structures, or planning for business succession, now is the time to review your estate plan in the context of your overall financial plan and make sure it aligns with the new law.
Stay Informed on the OBBBA
We’re continuing to share timely insights to help you navigate the One Big Beautiful Bill Act. Find all our updates on the OBBBA Resource Hub, and follow us on LinkedIn and via email to stay connected.
If you need further guidance or have any questions, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
