Navigating the One Big Beautiful Bill: Strategies for High-Net-Worth Individuals

Donald Trump has dubbed it the “One Big Beautiful Bill” (OBBBA), whereas critics label it a tax boon for the affluent. Regardless of political viewpoints, the legislation enacted this summer offers substantial benefits, particularly for high-net-worth individuals. This comprehensive overview aims to explain the key provisions of the OBBBA and offer strategies for wealth preservation and generational wealth transfer.

Key Benefits of the One Big Beautiful Bill for Wealth Transfer

The OBBBA signifies a monumental shift in estate planning for wealth managers and estate planners. Key highlights include:

• Increased Exemptions: The federal estate and gift tax exemption has surged to $15 million per individual, or $30 million for married couples, and is now permanently indexed for inflation.
• Capital Gains Treatment: The bill maintains favorable capital gains treatment, essential for long-term investments.
• Investment Expensing and Charitable Deductions: Enhanced provisions for full expensing of new investments and altered rules on charitable deductions and trust taxation ensure the wealth transfer strategy adapts significantly.

Why Time is of the Essence

Experts emphasize the importance of acting quickly under the new law. Richard Miller Jr., an esteemed partner at Hughes Hubbard & Reed LLP, urges individuals to utilize the increased exemption amounts at their earliest convenience:

“While these provisions are deemed ‘permanent,’ future administrations might modify these limits.”

Maximize Your Exemption Now

Estate planners warn that opportunities to transfer substantial wealth tax-free might not last indefinitely. Dawn Jinsky, a Certified Financial Planner at Plante Moran Wealth Management, suggests:

“For financially independent families, gifting assets sooner rather than later is beneficial.”

Real estate and closely held businesses present ideal gifting candidates, especially when employing valuation discounts.

The Dynasty Trust Opportunity

The OBBBA opens unprecedented avenues for multigenerational wealth management through dynasty trusts. Jinsky explains that coordinating estate and generation-skipping transfer (GST) exemptions can fully utilize the GST exemption without incurring gift tax.

Miller adds:

“Irrevocable non-grantor trusts allow the trust to pay its income taxes, maximizing deductions like the recently increased SALT deduction and the Qualified Business Income Deduction.”

Local Considerations: Don’t Forget State Estate Taxes

While the federal estate exemption has risen, many states still impose lower estate or inheritance tax limits. Individuals should revisit their wills or revocable trusts to ensure compliance with both federal and state laws.

Miller warns:

“In high-tax states like New York and Massachusetts, misalignment could lead to substantial tax liabilities.”

Optimizing Charitable Giving

Changes to charitable giving rules warrant immediate attention. The OBBBA introduces a 0.5% adjusted gross income “haircut” on charitable deductions, reducing overall benefits for high-income earners. Therefore, Miller recommends accelerating significant charitable contributions before the end of 2025 to capitalize on more favorable deduction rates.

Reevaluating Trust Structures: GRATs and ILITs

Grantor Retained Annuity Trusts (GRATs) and Irrevocable Life Insurance Trusts (ILITs) may also require revisions based on the new regulations. Miller notes that new rules could affect minimum terms for GRATs and emphasizes the importance of locking in transactions now.

For ILITs, it may be beneficial to convert these into non-grantor trusts to better align with the evolving tax landscape.

Managing International Wealth and Complexity

For high-net-worth individuals with international assets, multiple tax jurisdictions pose additional challenges. U.S. citizens face taxation on worldwide assets, potentially leading to double taxation on foreign properties if future Congresses amend estate tax exemptions.

Miller cautions:

“The evolving landscape makes timely reviews critical for those holding real property in multiple countries.”

The Political Landscape: Risks Ahead

Despite the OBBBA’s permanent changes, tax industry experts remain cautious. Previous increases in exemption limits were set to expire, suggesting the current regime could be at risk:

“The savvy move is to act now,” Miller emphasizes.

Conclusion: The Time to Act is Now

The OBBBA has redefined the landscape for estate planning and wealth transfer. With significant changes benefiting high-net-worth individuals, proactive measures are essential.

As wealth strategist Dawn Jinsky succinctly advises:

“Gift early. Gift smart. Ensure your structure can adapt.”

By taking timely action and contemplating these strategies, individuals can secure their generational wealth in an ever-evolving financial landscape.

Focus Keyword: One Big Beautiful Bill

Through strategic planning and timely decisions, navigating the nuances of the One Big Beautiful Bill can lead to substantial long-term benefits for high-net-worth individuals and their families.