Tag: estate planning

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The 10 Biggest Recent Tax Law Changes for High-Income Households

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In our previous articles, we have said that the One Big Beautiful Bill Act (OBBBA) represents one of the most significant tax law updates in years. While the legislation contains hundreds of provisions, several changes are particularly relevant for high-income households, including business owners and families with substantial estates.

Below are ten of the most important changes and the planning conversations they may trigger.

1. Greater Certainty for Long-Term Tax Planning

A major theme of OBBBA is permanency. Several provisions that were previously temporary have now been extended indefinitely. This includes:

  • pass-through deductions
  • estate tax exemptions
  • certain business deductions

Planning opportunity:

Greater certainty allows families and business owners to build long-term tax strategies with fewer sunset concerns.

2. TCJA individual tax rates made permanent

The Tax Cuts and Jobs Act (TCJA) passed in 2017 lowered top federal income tax rate to 37%. Instead of reverting to higher pre-2018 rates, the OBBBA makes it permanent, providing greater long-term planning certainty.

Planning opportunity:

Years with temporarily lower taxable income may still present opportunities to:

  • convert portions of traditional IRAs to Roth IRAs
  • reduce future required minimum distributions
  • leave tax-free assets to heirs

3. The 20% Pass-Through Income Deduction Is Now Permanent

The Internal Revenue Code Section 199A Qualified Business Income deduction allows many business owners to deduct up to 20% of pass-through income. Before OBBBA, this deduction was set to expire after 2025.

Planning opportunity:

Business owners may want to revisit –

  • S-corporation salary strategies
  • entity structure decisions
  • income timing strategies

4. Expanded Tax Benefits for Qualified Small Business Stock

The law enhances the tax advantages under Internal Revenue Code Section 1202 Qualified Small Business Stock (QSBS). Changes include:

  • Tiered capital gains exclusion
    • 50% exclusion after 3 years
    • 75% exclusion after 4 years
    • 100% exclusion after 5 years
  • Higher exclusion limit
    • Increased to $15 million
  • Expanded company eligibility
    • Asset threshold increased to $75 million

Planning opportunity:

For founders or investors expecting a business exit, entity structure and stock issuance timing may significantly affect future taxes.

5. Immediate Deduction of Domestic R&D Costs

The law restores immediate deductibility of domestic research and development expenses under Internal Revenue Code Section 174. This reverses the previous rule requiring five-year amortization.

Planning opportunity:

Technology firms, engineering companies, and innovation-driven businesses may benefit from improved cash flow and faster tax deductions.

6. More Favorable Interest Deduction Rules

Changes to Internal Revenue Code Section 163(j) increase the allowable deduction for business interest expenses. The formula once again resembles EBITDA rather than EBIT, allowing many leveraged businesses to deduct more interest.

Planning opportunity:

Real estate investors and private business owners may benefit from re-evaluating financing strategies.

7. Changes to Energy and Clean-Technology Credits

Several energy-related incentives are being phased out over the coming years. Credits affected include those related to:

  • electric vehicles
  • energy-efficient buildings
  • clean energy infrastructure

Planning opportunity:

Households and business owners planning energy projects may want to review timelines to capture remaining credits before phase-outs occur.

8. Higher Estate and Gift Tax Exemptions Made Permanent

One of the biggest changes affects estate planning. The law makes the historically high federal estate tax exemption permanent under Internal Revenue Code Section 2010. For 2025 and beyond:

  • Individuals can transfer roughly $15 million+ estate-tax-free
  • Married couples can transfer $30 million+

Without legislative action, the exemption was previously scheduled to drop roughly in half after 2025.

Planning opportunity:

Families may still benefit from strategies such as spousal lifetime access trusts (SLATs) or dynasty trusts to lock in exemption and protect assets from estate taxes in future generations.

9. Estate Planning Strategies Still Matter

Even with higher estate exemptions, many high-net-worth families still benefit from thoughtful planning using tools such as:

  • irrevocable trusts
  • dynasty trusts
  • lifetime gifting strategies
  • charitable planning

Planning opportunity:

Proper structuring can help families reduce estate taxes, protect assets, and preserve wealth across generations.

10. Expanded 529 Education Savings Plan Flexibility

Effective January 1, 2026, the federal 529 plan distribution limit for K–12 education doubles from $10,000 to $20,000 per beneficiary per year. Qualified withdrawals remain federal income tax-free. The $20,000 annual limit is per student (beneficiary), not per family. Also, the OBBBA significantly expanded the definition of qualified K–12 education expenses. In addition to private school tuition, qualifying expenses may now include:

  • Certain educational therapies and services for students with disabilities (subject to the statutory rules)
  • Tuition at public, private, or religious schools
  • Curriculum and instructional materials
  • Books
  • Online educational materials
  • Certain tutoring expenses
  • Fees for standardized tests
  • Dual-enrollment fees

Planning opportunity:

If you’re planning for private school, the combination of a 529 plan (up to $20,000/year of tax-free qualified withdrawals), and your state’s eligible education savings account could substantially reduce your family’s out-of-pocket education costs.

In summary, the One Big Beautiful Bill Act introduces significant tax changes affecting affluent households, and business owners. While many provisions provide new opportunities, their impact depends heavily on your:

  • income level
  • business structure
  • estate size
  • investment strategy

A coordinated approach between your financial professionals and attorneys can help ensure these changes are incorporated into your broader wealth plan.

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3 Estate Planning Moves You Need to Consider Now

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Summer break is often a good time to review financial goals, and family priorities. It can also be an important opportunity to revisit your estate plan—especially in light of recent tax law changes. While estate planning strategies vary from family to family, the following three moves are commonly worth reviewing now or before the end of the year.

1. Review Your Estate Tax Exposure

The federal estate and gift tax exemption under Internal Revenue Code Section 2010 remains historically high. For many families:

  • Individuals may transfer over $15 million free of federal estate tax
  • Married couples may transfer over $30 million

Even with these higher limits, estate taxes can still be relevant for families with significant real estate, closely held businesses, or concentrated investment portfolios. Review whether your current estate plan still aligns with:

  • your net worth
  • projected asset growth
  • potential future estate tax exposure

2. Use Your Annual Gift Tax Exclusion

Each year, individuals can give assets to others without triggering gift tax reporting under Internal Revenue Code Section 2503. These gifts can be made to children, grandchildren, and other family members. For 2026, the annual exclusion allows gifts of approximately:

  • $19,000 per recipient
  • $38,000 per recipient for married couples

Over time, consistent gifting can reduce the size of a taxable estate while helping younger generations earlier in life. Consider whether year-end gifts could support:

  • education funding
  • home purchases
  • long-term investment accounts

3. Consider Funding or Updating Trusts

Trusts remain one of the most powerful tools for managing wealth across generations. Trusts can also help protect assets from creditors, divorce risk, and spendthrift behavior. Common trust strategies include:

  • revocable living trusts for probate avoidance
  • irrevocable trusts for estate tax planning
  • lifetime discretionary trusts for asset protection
  • dynasty trusts designed to preserve wealth across generations

Review whether existing trusts should be:

  • funded with additional assets
  • updated to reflect changes in family circumstances
  • aligned with current tax law

Estate planning is not a one-time event. As tax laws, family situations, and financial circumstances evolve, periodic reviews are absolutely critical in ensuring your money passes to the right beneficiary in an tax efficient way as you intend to.

Now is a good time to coordinate with your financial advisor and estate attorney to confirm that your estate strategy remains aligned with both current tax rules and your long-term family objectives.

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Why the Financial Decisions You Make in Your 50s and Early 60s Matter More Than Any Other Time

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It is fair to say that in the minds of many in affluent households, retirement success is determined by market returns alone. This is not surprise given the fact that every day everywhere we are bombarded by news concerning the ups and downs of major stock market indexes. In reality, research after research shows that retirement success is determined by how taxes, RMDs, Social Security, and Medicare interact over time.

What’s more, the difference between proactive planning and “do nothing” defaults during your late 50s and early 60s routinely reaches $500,000–$1,500,000 in lifetime after-tax wealth for households with net worth ranging from $3 million to $8 million. There are numbers behind that statement.

Most pre-retirees’ households with net worth of $3 million to $8 million share a similar balance sheet like this:

Asset Type     Typical Allocation
Tax-deferred (401(k)/IRA)             45%–65%
Taxable brokerage             25%–40%
Roth             5%–15%
Home / Other    Excluded from income planning

This concentration in tax-deferred accounts is the root of most retirement tax problems. Let’s look at a hypothetical pre-retiree couple age 60 years old with a $3 million portfolio and $1.8 million in pre-tax accounts. Assume a 5% annual growth rate of their pre-tax portfolio, by the time they reach age of 73 when they start their first RMD (required minimum distribution) from their pre-tax retirement plan(s), their first RMD would be close to $98,000. Combined with Social Security, it is estimated that 85% of Social Security Benefits would be taxable, and they would pay higher Medicare premium. And their overall marginal tax rate would be pushed up to as high as 32%.

The conclusion: RMD planning is not optional.

One of the important financial decisions pre-retirees in their late 50s and early 60s must make is when to claim their Social Security benefits. For example, the claim timing for a married couple with net worth of $5 million and $3 million tax-deferred portfolio can mean a big difference in the range of approximately $450,000 to $600,000 in retirement income.

The conclusion: for affluent retirees, the timing of claiming Social Security benefits is often a tax and longevity hedge, not an income necessity.

As people gets older, healthcare expense gradually becomes their largest expense especially during their retirement. No planning or bad planning can significantly increase a retiree’s Medicare premium paid. For example, a married couple age 66 years old with a net worth of $8 million find out that Medicare premiums increase dramatically because their Modified AGI exceeds IRMAA thresholds due to a one-time Roth conversion at age 64. Depending on the amount of the conversion, their Medicare Part B + D surcharges could add up to $10,000 per year. Due to income stacking that persists for multiple years, their lifetime excess premium could top $120,000.

Conclusion: Medicare is not a healthcare decision—it’s a lifetime pricing contract.

Across households with net worth in the range of $3 million to $8 million, proactive planning during ages 55–65 typically delivers:

  • $250k–$600k in reduced lifetime taxes
  • $50k–$150k in avoided Medicare premiums
  • $300k–$800k in increased after-tax legacy value
  • Greater income stability in market downturns

Bottom line for high-net-worth pre-retirees: your mid-to-late 50s and early 60s are not just about investment performance – they are more about engineering outcomes. This is the final window where you can:

  •  Reshape future RMDs
  • Control tax brackets
  • Optimize Social Security
  • Lock in Medicare costs
  • Improve estate efficiency

Once RMDs and Medicare begin, most decisions become reactive.

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Have you included pet(s) in your financial plan yet?

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One night in March this year, our nine-month-old puppy was enjoying his favorite treat-beef trachea. All of a sudden, he started licking his lips and pacing up and down, unsettled. It turned out that he swallowed a big piece of the trachea without chewing it sufficiently, and the piece blocked his esophagus. We took him to an animal clinic that can perform an endoscopic procedure to get the trachea out. With pet health insurance, the whole procedure would cost us only several hundred dollars. Without pet insurance, however, it would set us back several thousand dollars. The surgery was successful. Now, my puppy has fully recovered. He is sleeping sound and well as I am writing this article.

Americans are pet lovers. More than 80% of Americans regard pets as their family members. Sadly, sometimes pets suffer from their owners’ lack of forethought and planning. We see dogs and cats not getting proper care or medical treatments because of financial trade-offs. We see dogs become homeless after their owners’ deaths. Therefore, a little planning before hand can prevent heartbreaking situations for our pets.

Pet Insurances

Before adopting a pet, think about the time and money you can commit. Do you have to alter your current lifestyle a little bit or a lot? Are you willing to change? What about the financial consequences? Take, for example, the case of owning a dog. Some breeds of dog could incur a large amount of medical bills down the road. One way to mitigate the financial burden is to buy pet insurance. Do a cost/benefit analysis. Does it make sense to buy pet health insurance in your individual situation? Many pet insurances only cover cats and dogs, but a couple of insurers will also cover birds and reptiles. Before you purchase health insurance for your pet, be sure you understand what covered and excluded conditions are and how you file an insurance claim. Many pet insurance companies put their sample insurance policies on their websites. Locate these policies and read them carefully.

Setting Up Companion Animal (Pet) Trusts

Our pets bring us joys and companionship, but they also depend on us for continuous care. How to provide such care in case we are not able to? Pet trust can be a valuable tool for pet owners to do so. So far, all 50 states of the U.S have passed laws allowing pet owners to set up trusts for their companion pets. While considering setting up a trust for your pet, it is a good practice to designate different parties as caregiver of your pet and trustee that administer the funds in the trust for pet respectively.

Alternatively, pet owners can opt for a pet protection agreement, which is simpler than setting up pet trusts, to protect their pets. With a pet protection agreement, pet owners can name their pets’ guardians, leaving funds, and providing instructions for how to care for your pets when you are not around.

Talk to your advisor or lawyer about how to include pets in your financial plan. Don’t let our four-legged family members suffer from the consequences of our lack of planning.