From the Desk of San Diego Estate Planning Attorney Kristina R. Hess with contribution from Rachel Lee
In July 2025, the One Big Beautiful Bill Act was signed into law, making permanent many provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introducing new opportunities for families, business owners, and high-net worth individuals.
Estate and Gift Tax Exemption Permanently Increases to $15 Million
The most significant change for estate planning is the permanent increase in the federal estate and gift tax exemption. As of 2025, under the TCJA, the estate and gift tax exemption and Generation-Skipping Transfer Tax (GST) exemption was $10 million per individual and set to expire on 12/31/2025. The new law permanently increased the exemptions to $15 million per individual, indexed annually for inflation, beginning on 1/1/2026. For married couples, this means you may pass $30 million free of federal estate and gift tax .
Additionally, several long-standing rules remain unchanged:
- The top federal estate and gift tax rate remains 40% for assets exceeding the exemption.
- Any unused exemption may still be transferred to a surviving spouse via a portability election and timely filed 706 Estate Tax Return (however, this does not apply for the generation-skipping tax).
- Assets included in an estate continue to receive a step-up in income tax basis at death, which can significantly reduce capital gains for your heirs
New Savings Opportunities for Children Born After 2025 and Expanded Use of Section 529 Plans
The new law provides new opportunities for families planning for future generations.
Beginning in 2026, each child born in the United States after 2025 and before January 1, 2029, is eligible to receive a one-time government contribution of $1,000 to a new tax-advantaged “Trump Account.” After July 4, 2026, families may make annual contributions of up to $5,000 per child, indexed annually for inflation, and employers may contribute $2,500 per year, without it being considered as taxable income for the child. Contributions may be made until the child reaches the age of 18. Like a Roth IRA, these accounts are designed to grow tax-free, with funds available starting at the age of 18 for certain qualified expenses, expected to include higher education, first-time home purchases, and small-business expenses.
In addition, 529 education savings plans are now more flexible. In addition to college costs, 529 funds may be used for educational expenses related to enrollment or attendance at elementary or secondary public private, or religious schools. The expanded list of eligible expenses include: tuition, curricular materials, books, online educational materials, tutoring, educational classes outside the home, fees for standardized tests, advanced placement exams, college admissions exams, dual enrollment fees, and certain educational therapies for students. The annual withdrawal limit for K-12 education expenses has increased from $10,000 to $20,000 per student.
In light of the new law’s expanded flexibility for 529 plans, clients may wish to revisit an existing planning strategy, known as “accelerated gifting.” By “superfunding” a 529, families can contribute five years of contributions all at once in a single year, instead of spreading these contributions out over several years. This means individuals can contribute up to $95,000 per beneficiary (or $190,000 for married couples), all while avoiding paying gift taxes. This approach allows clients to move assets out of their taxable estate while jump-starting tax-free growth for a child or grand-child’s education and other qualifying expenses.
Changes to Charitable Giving
The new law makes several adjustments to charitable contribution rules.
- Taxpayers who do not itemize may now deduct cash contributions of up to $1,000 for individuals and $2,000 for married couples.
- Starting in 2026, charitable contributions must now exceed 0.5% of a taxpayer’s adjusted gross income before becoming deductible.
- Cash donations to charity are deductible up to 60% of AGI, TCJA rule made permanent.
Can You Say 100% Bonus Depreciation!
- This rule is a big bonus for all of our real estate investors and business owners. The new law provides 100% bonus depreciation for property acquired after January 19, 2025, and placed in service after that same date. The law allows businesses to take 100% bonus depreciation on eligible new and used property placed in service after 2025. The types of property that qualify for bonus depreciation remain the same. The reinstated provision allows you to make immediate write-offs of investments, such as equipment, machinery, technology and certain vehicles, which can dramatically improve cash flow and reduce tax liability, not to mention investment real estate.
- You should strongly consider performing a cost segregation study to help take better advantage of bonus depreciation
Additionally, the Section 179 expensing limit has increased to $2.5 million, with a phase-out beginning at $5 million, providing business owners with greater flexibility for managing taxable income from business operations.
Selling a Small Business
The new law also expands the tax benefits available to small business founders and investors who hold Qualified Small Business Stock (QSBS). Previously, investors were required to hold stock for at least five years in order to exclude up to 100% of the gain upon the sale or exchange of QSBS. Under the new rules, more investors may qualify for partial or full gain exclusions:
- 50% of gain excluded if the stock is held for at least 3 years
- 75% of gain excluded if the stock is held for at least 4 years
- 100% of gain excluded if the stock is held for at least 5 years
In addition, the maximum amount of gain eligible for exclusion has increased from $10 million to $15 million (or ten times the investor’s basis, if greater), and the definition of a qualifying “small business” has been expanded by increasing the gross asset limit from $50 million to $75 million. These enhanced QSBS rules apply to shares issued after July 4, 2025, and shares issued before that date remain subject to the prior rules.
Other Noteworthy Changes Other noteworthy changes under the new law include the following:
- The federal annual gift tax exclusion remains in place at $19,000 per recipient, indexed annually for inflation, which allows for annual gifts to be made without using lifetime exemption amounts.
- The deduction for state and local taxes (SALT) has been temporarily increased from $10,000 to $40,000, subject to a phase-out for taxpayers who earn more than $250,000 (or $500,000 for married couples).
- The standard deduction, which was nearly doubled by the TCJA, is now permanent under the new law.
- A new temporary deduction offers additional tax relief for taxpayers ages 64 and older, allowing a deduction of up to $6,000 for individuals (or $12,000 for married couples). This benefit is also subject to a phase-out for high-income taxpayers and is available whether you itemize or take the standard deduction.
What This Means for Our Clients
The new law creates meaningful opportunities and important planning considerations for our clients:
- With the estate and tax exemption permanently increased to $15 million per person, clients no longer face the uncertainty of a possible reduction of the exemption amount, which allows for greater peace of mind and high-net-worth families to plan thoughtfully over time.
- The higher exemption amount may allow some clients to make additional lifetime gifts to family members while preserving sufficient exemption for future needs.
- New savings opportunities for children born after 2025, along with expanded uses of 529 plans and the existing 529 “superfunding” strategy make this a good time for families to review education funding strategies for future generations.
- Changes to charitable deduction rules may affect the timing and structure of how you want to make your charitable gifts.
- For business owners, enhanced depreciation rules and expanded Qualified Small Business Stock benefits may improve cash flow, reduce taxes on future sales, and create opportunities for transferring business interests as part of your estate plan.
Given these changes, now is the perfect time to review your estate plan and charitable goals to ensure they remain aligned with your goals and family circumstances. We are happy to help you navigate these updates and ensure your estate plan continues to protect your legacy. The KR Hess Law team wishes you and your loved ones a joyful holiday season and a prosperous new year.