Non-grantor trusts expand tax breaks for charity, QSBS

Wealthy clients are increasingly using non-grantor trusts to turn charitable donations and qualified small-business stock tax breaks into deductions that lower trust taxable income. The One Big Beautiful Bill Act, passed in July 2025, increased the state and local tax deduction, restored the qualified business income deduction for pass-through entities and expanded relief for capital gains on qualified small-business stock.

Non-grantor trusts are taxed separately and do not get a standard deduction. That lets charitable contributions made by the trust offset most of the trust’s taxable income. Martin Shenkman, partner at Shenkman Tietz, illustrated the effect: “Trusts don’t get a standard deduction, so there’s no reduction for that. So most of the money that goes to charity can offset the income.”

Advisers say the changes under OBBBA can be used together inside non-grantor trusts. Increased SALT deductions, the returned QBI deduction and expanded QSBS relief can be combined in some trust structures, but legal and timing issues affect outcomes. Kristin Yokomoto, partner at FBT Gibbons, cautioned that toggling grantor trust powers to achieve non-grantor status “requires careful analysis, and timing can matter.”

State law matters. Jamie Hopkins, CEO of Bryn Mawr Trust Advisors, identified Delaware and Nevada as states with favorable trust law and tax rules for non-grantor trusts.

Other planning techniques have changed since OBBBA set the federal estate and gift tax exemption at $15 million for individuals and $30 million for married couples. Estate freeze strategies have become less common because the permanent exemption reduces the urgency to move assets out of estates to cap future taxable value.

Non-grantor trusts are generally irrevocable. If a grantor’s spouse is a beneficiary, the trust is usually treated as a grantor trust. Some planners have described spousal lifetime access non-grantor trusts (SLANTs) that try to keep a spouse as beneficiary while qualifying as non-grantor; Chris Nason, head of private wealth at Wealth.com and a lecturer at Stanford Law School, warned that those arrangements are complex and risky.

Putting real estate into a non-grantor trust can raise trade-offs. Assets held in such trusts are outside the grantor’s taxable estate and do not receive a step-up in cost basis at death, which can mean higher capital gains tax when beneficiaries sell. Frank Paolini, partner in the private wealth practice at Neal, Gerber & Eisenberg, said the choice involves comparing current tax savings from SALT and other deductions with the loss of a basis adjustment and the limited ability to remove assets from the trust.

Charitable remainder trusts remain a common way to get income tax benefits inside non-grantor structures. Advisers report growing client interest in the SALT-related opportunities created by OBBBA. Professionals recommend detailed tax and legal analysis before changing trust terms or moving assets to non-grantor vehicles.