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Client Update: Trust & Estate Tax Changes Under the One Big, Beautiful Bill Act (OBBBA)

October 21, 2025

CLIENT UPDATE

Trust & Estate Tax Changes Under the One Big, Beautiful Bill Act (OBBBA)

By Attorney Mark Bartram

I am very pleased to have recently joined Sheehan Phinney’s Trusts & Estates Group. My practice focuses on helping individuals and families design and implement strategies that preserve wealth, minimize taxes, protect assets, and achieve legacy and charitable planning goals. With extensive experience in estate planning, and fiduciary and trust administration, I look forward to supporting Sheehan Phinney clients in navigating complex planning opportunities.

As I join the firm, I am excited to share some updates on significant federal trust and estate tax changes that will shape planning for high-net-worth and ultra-high-net-worth clients. The President signed the OBBBA (Public Law No. 119-21) enacting some of the most significant federal transfer tax laws in over a decade. Most provisions take effect on January 1, 2026, giving clients a critical planning window through the end of 2025.

Key Provisions

  • Estate & Gift Tax Exclusion – Lifetime exemption permanently increases to $15 million per individual (indexed beginning in 2027). The 40% top rate remains. Clients who fully used their prior $13.99 million exclusion gain an additional $1.01 million of transfer tax capacity.
  • Valuation Discounts Limited – Transfers of entity interests where more than 60% of assets are passive (e.g., securities, cash, non-operating real estate) will no longer be eligible for lack-of-control or marketability discounts. Transfers claiming a discount for lack-of-control or marketability must be completed by December 31, 2025.
  • Charitable Giving – Deduction rules restructured:
    • Itemized deductions are limited on contributions exceeding 0.5% of their Adjusted Gross Income.
    • Taxpayers taking the standard (non-itemized) deduction may now claim an above-the-line charitable adjustment of up to $1,000 ($2,000 for joint filers).
    • Donor Advised Funds must distribute assets within 10 years.
    • Newly formed Charitable Remainder Trusts will have to distribute a minimum 5% annual payout.
    • New Child Custodial Accounts – Starting in 2026, families may contribute up to $5,000 annually per child under 18 (indexed for inflation). The Treasury will make a one-time $1,000 deposit for children born between 2025–2028. Funds may be used for education, housing, or investments, with a 10% penalty on early withdrawals. Contributions qualify for the annual gift tax exclusion and should be coordinated with other custodial arrangements.

Planning Considerations

With these provisions set to take effect in 2026, 2025 is the final year for clients to take advantage of current rules; particularly completing discounted transfers of passive-asset entities and making charitable contributions before the new adjusted gross income (AGI) floor applies.

Estate plans should be reviewed and updated to reflect new exclusion amounts, discount limitations, and charitable rules. We encourage you to reach out to discuss how these changes may affect your planning. I look forward to working with Sheehan Phinney clients to navigate these opportunities and ensure strategies are tailored to protect and grow family wealth.