The recently passed Big Beautiful Bill (BBB), officially known as the One Big Beautiful Bill (OBBBA), brings sweeping changes to tax laws that could significantly affect estate planning. Signed into law by President Trump on July 4, the bill was passed by slim margins in both the House and Senate, largely along party lines. The BBB is an expansive legislative piece that extends several expiring provisions from the 2017 Trump tax cuts, originally part of the Tax Cuts and Jobs Act.
Among its numerous tax changes, notable provisions include the elimination of taxes on certain tips and overtime pay, and the termination of several clean energy tax incentives. While the Congressional Budget Office has estimated that the BBB could add over $3.9 trillion to the national debt in the next decade, opinions vary widely. Some believe this will stimulate economic growth and increase tax revenues, while others argue it will harm millions by reducing benefits such as Medicaid and SNAP—though these cuts are intended to curb fraud and abuse.
The BBB introduces substantial tax benefits for the wealthy, which critics argue could increase the wealth disparity in the U.S. Proponents, on the other hand, believe these benefits will drive economic growth. Regardless of which side proves correct, the general consensus is that estate planning remains crucial. A significant focus of the BBB is the “permanent” estate tax exemption of $15 million.
This substantial exemption might encourage wealthy individuals to transfer assets into irrevocable trusts now to prevent future estate tax liabilities. The BBB introduces numerous specific tax provisions that affect various types of income and activities. For instance:
– Tips receive favorable tax treatment compared to other forms of income.
– Real estate and certain business activities may qualify for a 20% reduction in income, but this excludes professionals like doctors and lawyers.
Estate tax exemption impacts planning
– Teachers can deduct unreimbursed employee expenses, while most other itemized deductions are not permitted.
– Personal interest expenses are generally non-deductible, yet interest on car loans from 2025-2028 can be deducted. – Income tax from the sale of farmland to a qualified farmer can be deferred and paid in four annual installments. These idiosyncrasies add layers of complexity to an already opaque tax code and create various incentives and disincentives that may seem arbitrary.
Such complexity will likely make tax planning more convoluted. Given these changes, the implications for estate planning are profound. Wealthy individuals may need to consider advanced strategies to navigate this new landscape effectively.
For example, those who believe that the tax cuts will spur economic growth might transfer more assets into trusts now to avoid future estate taxes. On the contrary, if the bill’s provisions lead to adverse economic effects, there may be significant political shifts that could lead to new tax laws targeting the wealthy. Tax increases might be inevitable if the projected economic growth does not materialize and deficit concerns mount.
Proposals such as Senator Warren’s wealth tax, aiming to levy a tax on wealth exceeding $30 million, could become a reality. The Big Beautiful Bill represents one of the most comprehensive overhauls of tax legislation in recent history. Its impacts will unfold over time, but what remains clear is that effective estate planning has never been more important.
Amid the polarized political climate and intricate tax code changes, individuals must stay informed and possibly revisit their estate plans to ensure they align with the new law.
