Episode 11: OB3’s Impact on Estate Planning & Wealth Strategy

Welcome back to “Tackling Tax,” where we’ll bring you the latest on tax policy and strategies—in an easy-to-understand format. Whether you’re looking to learn more about tax bills, global tax implications, or planning insights for your business, you’re in the right place.

Listen every other week for more from our guests, which include everyone from university scholars to industry professionals to the firm’s experienced leaders.

On this episode, we’ll look at the impact of the One Big Beautiful Bill Act (OB3) on estate planning and wealth strategy, including changes to the estate and gift tax exemption and what they mean for succession planning. We welcome Troy Farmer, managing director with our firm’s wealth strategy team.

If you have any questions or need any assistance, please reach out to a professional at Forvis Mazars.

Transcript

IRIS LAWS

On this episode, we'll look into the impact of OB3 on estate planning and wealth strategy, including the changes to the estate and gift tax exemption and what they mean for their succession planning. We're joined by Troy Farmer, the managing director of Forvis Mazars’ wealth strategy team. From your one stop for tax updates and analysis, I'm Iris.

DEVIN TENNEY

And I'm Devin.

IRIS LAWS

It's Tuesday, September 30th, and this is Tackling Tax.

DEVIN TENNEY

Before we get started with our much-anticipated guest, we always start our show with the four stories of the week that we think might be most impactful to you. So let's jump right into our Fast Four stories of the week.

IRIS LAWS

Just for context, we are recording this on September 26th, at which point no continuing resolution deal has been struck and we are all anxiously waiting to see how the process of funding the government will unfold. So, even though the House was able to pass a concurring resolution with a 217 to 212 vote, we were met with gridlock in the Senate. With the September 30th deadline looming, Congress returns from recess on the 29th.

So, yes, senators are really under pressure here to get something together to avoid a government shutdown. So, what's the holdup? The Republican proposed version of the CR failed with a 44 to 48 vote, largely due to two Republican senators voting no and absent of eight senators from the vote altogether. Democrats are holding out for a CR that includes further considerations for healthcare, like the premium tax credit. Even so, their proposed version of the CR also failed.

DEVIN TENNEY

So, what's it going to take to get something passed here?

IRIS LAWS

Well, we're kind of in a game of chicken at the moment. Honestly, Devin, Republicans have even told House members that they don't need to return until after the September 30th deadline. So, a play ultimately targeted to pressure Democrats into accepting the Republican version, or be blamed ultimately for forcing the shutdown.

DEVIN TENNEY

The U.S.-Mexico-Canada Trade Agreement, or the USMCA for short, must undergo review every six years based on the terms of the deal. Well, next year is the next review year. And depending on the climate at the time, it could prove to be an interesting exercise. Now, in anticipation of the review, Canadian Prime Minister Mark Carney and Mexican President Claudia Sheinbaum Pardo met in Mexico City on the topic of trade and their working relationship.

Now, note that the U.S. trade rep has launched a period of public comment ending on November 3rd, and then a hearing will occur on November 17th.

IRIS LAWS

The case against President Trump and the reciprocal tariffs under IEPA will continue to be heard in the Supreme Court on November 5th.

DEVIN TENNEY

Iris, did I hear that you are going to the hearing?

IRIS LAWS

Well, I'm not sure yet, but I have entered the lottery, so fingers crossed that works out. If so, we'll be bringing you a very special edition of Tackling Tax from D.C. on that day.

DEVIN TENNEY

Well, fingers and toes crossed in that case.

Near and dear to my heart, we've got a comp and ben related story that brings us home for these Fast Four. Now, proposed regulations were released, accompanying the new tips deduction made available by OB3. Now, these regulations list qualified occupations and this list basically mirrors the preliminary list that came out earlier this year and goes on to further clarify how they determine what that list is. It additionally defines what qualified tips are.

First, it specifies they must be cash based. So, this is going to include things like credit cards, gift cards, casino chips if it's gambling related. But it's not going to include, like, digital assets, meals, or even event tickets.

Note that tips from a tip pool qualify additionally, so that will cover like a chef or a cook. Someone who may not historically receive tips, but if they do receive them, a part of that, they're still qualified tips. Another important point to make here is that like service charges, automatic gratuities, and other automatic amounts. Basically, if the customer does not have the, you know, the discretion on how much they want to tip, then it's not going to be considered a qualified tip.

IRIS LAWS

So that automatic, you know, 20% tip for large parties at a restaurant, does that qualify?

DEVIN TENNEY

It does not unless it's just suggested. Or, let's say that the individual decides they have the 20% required, but they want to, they ultimately tip 25%‚ an additional 5%. That additional amount will still be considered a qualified tip because that was not required. That was voluntary.

IRIS LAWS

So, is there anything else the regs didn't address?

DEVIN TENNEY

Well, one little thing on the definition is we still don't know about allocated tips. I'm not going to get into that, but that is something I'd like some guidance on. The bigger issue for me is what to do in 2025. So, we know we got a form W2 for 2026, but we still do not have any transition guidance for 2025 on what employers are supposed to do.

Are they required to remit anything to the IRS? How are they supposed to give it to the employees? Are they even required to? There's a lot of questions on this, and I think that's probably the biggest issue that we need guidance on right now.

IRIS LAWS

Super interesting. Well, stick with us, y'all, as we transition to the main portion of our episode, Planning Insights.

DEVIN TENNEY

On today's segment of Planning Insights, we're joined by Troy Farmer, the managing director of Forvis Mazars’ Wealth Strategy team to talk about the primary ways that OB3 has impacted wealth planning strategies. Welcome to Tackling Tax, Troy.

TROY FARMER

Thank you, Devin.

DEVIN TENNEY

Well, Troy, to start, would you mind maybe just giving our audience a brief overview about you and your team and, really, what are you doing at the firm to provide that Unmatched Client Experience?

TROY FARMER

Sure thing. So, the wealth strategy team here at Forvis Mazars concentrates on helping our clients with preserving the wealth they built and transferring that wealth to future generations. And that can involve, of course, advanced estate planning techniques and illustrations, but also in the areas of business succession planning, corporate executive compensation planning, risk management, and modeling, all of that in financial illustrations that allow the client to see the impact of any estate planning moves that they might make.

DEVIN TENNEY

And how might, how is that considered maybe different than, you know, financial planning, for example?

TROY FARMER

So, my team, as a good thing to note here, my team does not do traditional financial planning in terms of cash flow planning, retirement planning, in any regards with investment management. My team focuses on the wealth that you've built and then how to transfer that wealth.

DEVIN TENNEY

Okay, so instead of the day-to-day or, you know, more of the short term, you're really focused on that long-term generational aspect of this?

TROY FARMER

That is absolutely a correct statement.

DEVIN TENNEY

Awesome. Well, Troy, as far as I understand with OB3, I think the primary change that's going to be affecting your area of practice would be the estate and gift tax exemption. Would you mind explaining what is that? You know, maybe it's a little bit of the history behind it and then what that change means for you and, you know, your clients moving forward?

TROY FARMER

Certainly. So, what the estate and gift tax exemption does, is it allows any individual to transfer so much of their assets at their death without incurring any estate tax on those assets.

So, currently that exemption sits at $13.99 million per person. So, let's call it $14 million. $14 million per person or $28 million per married couple that could be transferred to future generations without incurring any estate tax at that 40% rate. Prior to the One Big Beautiful Bill Act, that exemption level was scheduled to reduce by basically half at the end of 2025.

So, my team has been focused over the past few years on making sure that that exemption at those levels was being used because it was a use-it-or-lose-it proposition. But the One Big Beautiful Bill changed that and that exemption drop, or sunset as we called it, will not be occurring at the end of 2025. And those exemptions are now, quote unquote, “permanent” until possibly changed in the future by a different administration. But we are no longer in a rushed situation of use-it-or-lose-it by the end of 2025.

DEVIN TENNEY

Do you think that uncertainty of knowing that it could be changed by a future administration, is that something that's really considered at all, or is there some confidence that things will stick at that 15 million?

TROY FARMER

I believe that there is some confidence that exemption will, let's say, remain level at that $15 million-plus, then being in the future adjusted by an inflationary amount. You never know. It could be some day in the future where one party, i.e., probably the Democratic Party, gets the House and the Senate and the presidency and changes that in some way.

But if you look back on historically on the estate tax, since it was enacted way back, I believe, in 1936, we have never seen the exemption levels go down once they've been raised. So, I believe it would be difficult to reduce that exemption in the future. I'm not saying that a different administration couldn't play with the rate of the tax, but I think it would be hard to drop the exemption.

DEVIN TENNEY

Well, so we now have this increased and, you know, permanent exemption moving forward. How's that really changing your strategy on what you're telling clients and how is that impacting maybe what you've been doing over the last few years?

TROY FARMER

So, first of all, let me say that it reduces a lot of stress by trying to make sure clients get their planning done by the end of 2025. So, frankly, it's allowing us a little more time to be deeply analytical about the best moves to make without that pressure of the use-it-or-lose-it by December 2025.

The other, maybe more surprising thing about this legislation than the elimination of the sunset of the exemption, is the fact that for the exemption amount, instead of just raising by an inflationary amount next year in 2026, they actually raised the exemption all the way up to $15 million.

So, even though those clients who had used their exemption, now you have another million dollars that they could look at doing some planning with. And, you know, eliminating more from the estate tax base. So, all in all, what it has done with that quote unquote “permanency” is it allows us to not rush clients through making decisions and allowing a little more time to be analytical about the best estate planning moves to make.

But it also reinforces that, you know, it's a continual process. You don't do an estate plan, put it away, and it's done because, i.e., tax law changes will have an inflationary amount after 2026 every year to consider how to use. So, it is reinforcing the message that estate planning is fluid, wealth transfer planning is fluid. It is not a one-and-done exercise and it needs to be continuously nuanced.

One of the things that's important for our team, in stressing to our clients when we're working with them, is, yes, we do want to get that estate tax efficiency and reduce that potential estate tax liability as much as possible. But that's not how we initially frame the conversation. And the initial conversation is really what are the client's goals with their wealth?

What do they want their wealth to accomplish for themselves? What do they want that wealth to accomplish for their children? How do we protect that wealth in the future? So, it is not an exercise where we go in and say, you need to do this, this, this and this to reduce your estate tax liability as much as possible. It is an exercise of understanding what the clients want to accomplish and then figuring out which wealth transfer technique or which estate plan will really drive the results to those goals that they set.

DEVIN TENNEY

Now, I understand that the estate and gift tax exemption is not the only exemption, but there's also a generation skipping transfer exemption. Can you maybe explain what that is and what the impact would have been from any changes from OB3 on that front?

TROY FARMER

Certainly. So, the generation skipping tax exemption, I explain it is it's a parallel tax to the estate tax. And what the generation skipping tax exemption does, is it allows you, a client, to transfer assets to a generation two down from their level. In other words, a parent, instead of giving assets to their child, gives their assets to their grandchildren or future descendants.

That allows the assets to pass without being taxed at each generation. Years ago, a lot of very, very uber wealthy clients were, you know, giving their assets three and four generations down. And, as you know, escaping the estate tax at every generation. Thus, Congress instituted this generation skipping tax, which says, you can do that, but you can only do that at an exemption level the same as the estate tax.

So, you can give away, a married couple could, let's say, give away $30 million during their lifetime. But that $30 million is also the limitation on how much they can give to generations more than two away.

DEVIN TENNEY

Well, thanks for drawing the distinction between the two. I don't think I ever really understood that. Now, is it correct to say that, arguably one of the most beneficial estate planning rules is the step up in basis rules?

TROY FARMER

Yes. So, estate planning is definitely more than just considering the estate tax liability potential. As you may be aware, any assets held by a person in their estate when they die get a step up in basis to the fair market value of that asset on the date of death. So, estate planning also does include what I will call income tax basis planning.

When you give when you give an asset away during your lifetime, whatever your basis in that asset is follows to the recipient. So, if you had $1 million asset that you only had $100,000 of basis in, and you give that to your child as $1 million gift, if that child sells that asset, they're going to incur the capital gain because their basis will only be $100,000, just as it was your basis when you gave it away.

However, if that asset was in the client's estate when they passed away and their child inherited it at that time and it was worth $2 million then, then the child's basis becomes $2 million. So, when we are looking at estate planning techniques where we're giving away assets, we certainly consider what is the basis in the assets that we're looking at to fund an estate planning technique, to make sure that we are getting income tax efficiencies within our estate plan.

So, I will give you an example. I have a client that holds stock in a company, a well-known company that his grandfather was one of the founders. And so, he has inherited the stock and he's held it for a very long time and has a very low basis. He is considering making some major gifts to his child to use his exemption. But we are looking at assets other than that stock, because if he holds that stock until he dies and his children receive it, then they'll get a step-up in basis to today's value at the date of his death.

DEVIN TENNEY

No, thank you for that example. That definitely helps me understand that concept a little bit better. And it also sounds like many of the provisions in OB3 have been favorable for wealth strategy. Are there any new taxes or any other changes that may be more restrictive on what you're having to do?

TROY FARMER

I have not yet determined that anything is more restrictive. I would say, for my wealth strategy team, OB3 has been really a positive impact on our business because we are able now, with the what should be permanency in the exemption, able to advise clients more clearly and illustrate more clearly what an impact of giving away assets to use that exemption today means to their personal picture going forward.

DEVIN TENNEY

Now, as I understand, there's also an annual gift tax that I'm sure many of your clients have to take into consideration. That's probably something you're also planning around. Is that still around? Have there been any changes? What's that annual amount currently set at?

TROY FARMER

Yes. So, the annual exclusion, how the annual exclusion works is that any person can give to any other person, currently $19,000 a year, completely gift and estate tax-free.

So, that means I could give my brother, my sister, my mother $19,000 a year and it would have no impact, would use no exemptions, use none of that, you know, $14 going to be $15 million lifetime exemption. It is not income taxable to the recipient is a gift free and clear of taxes.

So, one of the first things we do to every client when we're looking at establishing a wealth strategy is taking advantage of that annual exclusion gift, because it is the most and the front line of protection against the gift and estate tax. So, we typically include an annual exclusion gifting program in just about every wealth strategy plan that we help a client develop.

DEVIN TENNEY

And does that $19,000 per gift per year, is that set against, then, your lifetime exclusion?

TROY FARMER

No, it does not count against that lifetime exclusion. So, that is one reason why we consider that probably the frontline and most efficient gift and estate tax technique there is. Because you could give away, you know, if a grandparent has two children and ten grandchildren, you know, that's 12 people that can receive $19,000 every year out of the estate, has no gift and estate tax impact, and does not use up any of that grandfather's lifetime exemption.

DEVIN TENNEY

What about any new reporting requirements, any other changes that you can think of from what you might have to do from, like, a compliance standpoint under OB3?

TROY FARMER

No, I do not believe there's any changes in reporting and compliance for OB3 from a gift and estate tax perspective or generation skipping tax perspective. However, one thing I would just state to remind everyone: the gift and estate tax exemption for a married couple, is quote unquote “portable.” So, in other words, if the first spouse to pass away doesn't use all of the exemption available to that spouse at their death, the remaining exemption is portable to the surviving spouse. So, the surviving spouse at his or her death has their own exemption plus what they've received from their deceased husband or wife.

It is important to remember, though, that to maintain that what we call unused spousal exemption, it is necessary to file a Form 706 estate tax return at the first spouse's death, even if that return would not otherwise be required.

DEVIN TENNEY

Well, Troy, this has all been an incredibly insightful, and it seems like there's a lot of opportunity for wealth strategy moving forward because of the OB3. As we get on to the last notes, are there any initiatives that you and your team are focusing on moving forward?

TROY FARMER

Yes. Our wealth strategy team is developing, we're trying to develop a couple of what I will call specialty service offerings. For some of our particular clients, we are looking at a corporate executive planning program that will combine the wealth strategy, you know, wealth strategy aspects of a corporate executive’s estate, along with efficient use of what I call advanced compensation for executives, how to exercise stock options, restricted stock units, any stock awards, and making sure that is all integrated with the estate plan.

And we're also working on a potential program for our business owner clients, a business transition advisory services practice, which would be cross-functional across a lot of lines within Forvis Mazars such as our ESOP group, our Corporate Tax group, our Capital Advisors group, on advising a business owner on both his personal wealth strategy as well as a strategy for a business succession or a business exit, and helping that business owner determine which exit strategy or succession strategy is in that client's best interests. And then our Wealth Strategy team works a lot with our Private Client team on family office services, and we are looking at expanding and upscaling our practice in that area.

DEVIN TENNEY

Well, that's all very exciting and hopefully we can have you on again here soon to maybe explore what those are looking like.

TROY FARMER

I would be happy to do that.

DEVIN TENNEY

Well, Troy, really appreciate you joining us today. This was incredibly insightful. I've personally learned a lot, even though I'm sure I studied this back in law school. Maybe worked on it at the beginning of my career. So, it's always good to continue to learn about this stuff.

IRIS LAWS

Each episode will bring you what we call a Focused FORsight of the week, an article or webinar that might be of interest to you. This week's Focused FORsight is WNTO's Third Quarter Update Webinar, aptly named Q3 2025 update from the Washington National Tax Office. Join us to discuss recent activities in the tax world, strategies from OB3 as well as some insights into what might be coming up in tax legislation.

DEVIN TENNEY

And that's our show. Thank you for joining. Remember to subscribe and listen in for the next episode of the podcast. Until next time.

ANNOUNCER

The information set forth in this podcast contains the analysis and conclusions of the panelists based upon his, her or their research and analysis of industry information and legal authorities. Such analysis and conclusions should not be deemed opinions or conclusions by Forvis Mazars or the panelists as to any individual situation as situations are fact-specific.

The listener should perform their own analysis and form their own conclusions regarding any specific situation. Further, the panelists’ conclusions may be revised without notice, with or without changes in industry information and legal authorities.

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