Introduction: A Storm is Brewing in the Tax World
If you own a business in Orange County or have accumulated significant wealth, 2025 is not the year to fall asleep at the wheel. With the U.S. House recently passing the tax-centric "One Big Beautiful Bill," the economic and legal landscape is shifting. This bill attempts to cement key provisions from the 2017 Tax Cuts and Jobs Act (TCJA), but it also opens the door to renewed discussion about taxing wealth more aggressively. If your estate planning strategy hasn't been updated in the last few years, now is the time.
In this blog, we break it all down in plain English—no jargon, just clarity. We'll look at how this new legislation impacts California residents, how it connects to the 2017 tax cuts, and what business owners should be doing now to protect and pass on their wealth.
What Is the "One Big Beautiful Bill"?
The House's passage of the "One Big Beautiful Bill" is a Republican-led effort to extend and make permanent many provisions of the 2017 TCJA. Key features include:
- Making the lower individual tax rates permanent.
- Extending the doubled estate tax exemption past 2026.
- Preserving the 20% qualified business income deduction (IRC §1399A) for pass-through entities like S-corps and LLCs.
This bill is viewed as an effort to offer continuity and tax certainty to individuals and businesses. However, it prompted strong reactions from Democrats, who argue that it locks in tax breaks for the wealthy while ballooning the national deficit. Their counter-efforts, expected to emerge more aggressively in 2026, include wealth tax proposals, a rollback of the step-up in basis (IRC §1014), and changes to dynasty trusts.
This sets the stage for a volatile tax landscape, where what you don't plan for could cost your family and your business millions.
Connecting to the 2017 Tax Cuts and Jobs Act (TCJA)
The TCJA dramatically altered the estate and business tax framework in 2017. Some provisions were permanent, but many key benefits for individuals and small businesses are set to expire in 2026.
Key Provisions and What They Mean Today:
- Estate Tax Exemption Doubled: From $5.49M in 2017 to $13.61M per person in 2024 (adjusted for inflation). Unless extended, this reverts to ~$7M per person in 2026.
- Pass-Through Deduction: IRC §1399A allows a 20% deduction on income for eligible businesses operating as S-corporations, LLCs, or sole proprietors.
- Corporate Tax Rate: Slashed from 35% to 21%, permanently.
- SALT Deduction Cap: State and local tax deductions limited to $10,000 per year—a major issue for Californians with high property and income taxes.
Without planning, you may face:
- Higher personal income tax
- A return of the estate tax for more estates
- Inability to protect family business assets from tax erosion
California Business Owners: Real-Life Vulnerabilities
Unlike some states, California doesn't levy its own estate tax. But you still have to contend with federal taxes, Prop 19 changes, and ultra-high income tax rates (up to 13.3%).
Example 1: Prop 19 Wrecking Inheritance Plans
Imagine Linda, a widow in Newport Beach, owns two homes—a personal residence and a rental valued at $3.5M. She wants to leave them to her two children. Under old rules, her kids would inherit the property tax base. Under Prop 19, unless the child moves in within a year, the property will be reassessed.
Her children now owe $28,000 more per year in property taxes, and may be forced to sell just to keep up.
Example 2: Missed Gifting Window
Carlos owns a high-growth tech startup valued at $14M. He plans to leave the business to his son. If he waits until 2026, and the exemption drops to ~$7M, the IRS could levy a $2.8M estate tax bill. With proper planning in 2025, that entire transfer could have been tax-free.
Example 3: Unprotected Business Equity
Business owners often fail to structure succession correctly. If a partner dies or divorces, it could jeopardize the entire company. Without buy-sell agreements and coordinated estate planning, business equity may be frozen or devalued.
Essential Planning Tools for 2025
1. Irrevocable Trusts
- Dynasty Trusts: Can lock in today's exemption before it drops in 2026. These trusts hold assets for multiple generations and bypass future estate taxes.
- South Dakota Asset Protection Trusts: Offer exceptional protection from future creditors and lawsuits, flexible trust modification through decanting, no state income tax, and strong directed trust statutes. South Dakota is recognized as a leading trust jurisdiction globally.
2. Charitable Remainder Trusts (CRTs)
- Ideal for business owners planning a sale. A CRT lets you donate appreciated stock, avoid immediate capital gains, receive lifetime income, and leave the remainder to charity.
3. Private Placement Life Insurance (PPLI)
- Acts like a tax-free investment wrapper for wealthy families.
- Can house hedge fund or private equity-like investments in a tax-advantaged life insurance structure.
- Death benefit is tax-free and outside your estate.
4. Qualified Small Business Stock (QSBS) – IRC §1202
- Exclude up to $10M in capital gains on qualified stock held for more than 5 years.
- Only applies to C-Corp shares acquired at original issuance.
5. Structured Installment Sales (IRC §453)
- Break up a large gain over several years.
- Keeps seller in a lower tax bracket.
- Often used when selling real estate or a business.
6. California Private Retirement Plans (CPRP)
- Protect assets from creditors while setting aside large pre-tax sums for retirement.
- Commonly used by professionals, medical groups, and law firm owners.
What You Should Do Right Now
- Audit your trust documents: Are they outdated or missing Prop 19 provisions?
- Draft or revise buy-sell agreements: Prepare for partnership exits, divorces, or deaths.
- Gifting: Consider gifting up to the $13.61M federal limit before it drops.
- Installment Planning: Explore a structured sale strategy if planning to exit a business.
- Secure QSBS eligibility: If you own a startup, make sure you're tracking holding periods and share types correctly.
FAQs: Your Top Questions Answered
Q: Will the estate tax exemption really drop in 2026?
Yes, without legislative action, it reverts to ~$7M per individual. Married couples may only protect ~$14M total.
Q: How can I lock in the current exemption before 2026?
Use irrevocable gifting strategies such as a Spousal Lifetime Access Trust (SLAT) or Dynasty Trust. Once gifted, that amount is excluded permanently.
Q: What is the best way to protect my real estate from reassessment under Prop 19?
Use a California-compliant irrevocable trust and plan for one child to move in and qualify for the parent-child transfer.
Q: What is the risk of holding C-Corp QSBS stock through an LLC?
A C-Corp must be held directly. Owning QSBS indirectly via an LLC may forfeit the IRC §1202 exclusion.
Q: Can a CPRP be used alongside a PPLI policy?
Yes. CPRPs protect domestic assets and generate deductible retirement contributions; PPLI grows and transfers offshore wealth tax-free.
How the Law Office of James Burns Helps
At the Law Office of James Burns, we offer customized strategies designed for high-net-worth Californians and business owners. Our boutique services include:
- Complex trust design (South Dakota, Dynasty Trusts)
- Advanced tax suppression (PPLI, CRTs)
- Business sale exit planning (IRC §453 Installment Sales)
- CPRPs and Prop 19 inheritance shielding
We help ensure your plan is future-proofed before exemptions vanish.
Check out related articles on our blog:
- How to Sell a Business and Pay 0% in Capital Gains (Legally)
- Why Traditional Estate Planning Fails Orange County's Wealthy
- The California Private Retirement Plan: Your Secret Weapon Against Creditors
Legal Disclaimer
This blog is for educational purposes only and does not constitute legal, tax, or investment advice. Always consult with a licensed professional before taking any planning action. Attorney James Burns is licensed in California and focuses on advanced estate planning and asset protection law.
Ready to Protect Your Legacy?
Book your consultation today with the Law Office of James Burns. Call (949) 305-8642 or visit www.jamesburnslaw.com to learn more. Your future deserves a plan—not just hope.
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