The Trump Administration’s Estate Planning Proposals

Uncertainty And Strategic Implications

The Trump administration’s estate tax proposals and executive orders have introduced significant uncertainty into estate planning. While some of these changes remain in the proposal stage, they highlight a shift in priorities that could reshape how high-net-worth individuals and families approach wealth transfer and asset management.

Proposed Estate Tax Repeal: A Major Policy Shift

One of the most notable proposals from the Trump administration is the potential repeal of the federal estate tax. Currently, the estate tax exemption stands at $13.99 million per individual (just under $28 million per couple), but this exemption is set to decrease to around $7 million per individual in 2026 unless Congress intervenes. The Trump administration has suggested either making the current high exemptions permanent or eliminating the estate tax altogether.

Implications Of Repeal Or Higher Exemptions

1. Reduced Complexity In Estate Planning — If the estate tax is repealed or significantly reduced, many wealthy individuals may no longer need sophisticated estate tax avoidance strategies.
2. Shift in Focus To Income And Capital Gains Tax Planning — With estate tax concerns diminished, the emphasis may move towards minimizing capital gains taxes and other tax-efficient strategies for passing on wealth.
3. State-Level Estate Taxes Remain A Concern — Even if the federal estate tax is repealed, some states impose their own estate or inheritance taxes, necessitating continued planning for those in high-tax jurisdictions.

Capital Gains Tax As A Replacement For The Estate Tax?

Another major consideration is whether a reformed capital gains tax will replace the estate tax. If implemented, this could significantly alter how inherited assets are taxed.

Key Changes Being Considered

• Elimination Or Modification Of The Step-Up In Basis — Currently, heirs receive a “step-up” in basis, meaning inherited assets are valued at their fair market value at the time of the decedent’s death, eliminating capital gains tax on prior appreciation. If this provision is removed, heirs may face significant capital gains taxes upon sale.
• Taxing Unrealized Gains At Death — There have been discussions about treating death as a realization event, meaning capital gains taxes would be assessed on inherited assets as if they had been sold at death. This could result in immediate tax liabilities for heirs, particularly those inheriting illiquid assets like real estate or family businesses.

Estate Planning Strategies For A Potential Shift

• Lifetime Gifting Strategies May Need Reassessment — Traditionally, lifetime gifting has been used to minimize estate tax liability, but its role may change if the estate tax is repealed and capital gains taxes increase.
• Trust Planning Adjustments — Certain trust structures designed to minimize estate taxes may become less relevant, while new strategies could emerge to manage capital gains tax exposure.
• Valuation And Cost Basis Management — Estate planners may need to focus more on accurate cost basis documentation to minimize capital gains tax burdens.

Broader Tax Proposals Affecting Wealth Transfer

Beyond estate and capital gains tax changes, other tax proposals, including those by Democrats like Bernie Sanders and Elizabeth Warren, could impact investment behavior and long-term wealth planning:

• Potential Increase In Capital Gains Tax Rates — There have been discussions about raising the long-term capital gains tax rate for high-income earners, which could affect investment strategies.
• Taxation of Unrealized Gains For The Ultra-Wealthy — Some proposals suggest taxing unrealized gains annually for individuals with a net worth exceeding $100 million.
• Continuation Of The Net Investment Income Tax — The 3.8% tax on investment income for high-income earners remains a factor in tax planning.

Impact On Business Succession And Family-Owned Enterprises

The potential tax changes could significantly impact how business owners plan for succession:

• Rethinking Exit Strategies — Business owners may need to reconsider the timing and structure of business sales to optimize tax outcomes.
• Entity Selection Considerations — The choice of business entity (C-corporations vs. pass-through entities) may need to be reassessed based on capital gains tax treatment.

Navigating Uncertainty: Flexible Estate Planning

Given the shifting tax landscape, estate planners should focus on maintaining flexibility in their strategies:

• Use Of Trusts With Adjustable Provisions — Trust structures should allow for modifications through decanting and non-judicial settlement in response to changing tax laws.
• Incorporating Tax-Efficient Charitable Giving – Donor-advised funds and Charitable Remainder Trusts can help mitigate tax burdens while achieving philanthropic goals.
• Strategic Timing of Asset Transfers — The timing of gifts, sales, and inheritances may become increasingly important in minimizing tax liabilities.

Conclusion: The Need For Proactive Estate Planning

While the Trump administration’s proposals have not yet been enacted, they signal a potential shift in how wealth transfer is taxed in the U.S. estate planners and their clients must stay informed and prepared to adjust their strategies based on legislative developments. Many commentators point to the log jam that occurred in 2011, the last time a tax sunset was set to expire. Whether through permanent estate tax repeal, capital gains tax changes, or other tax reforms, the future of estate planning is evolving, requiring a proactive and flexible approach now, rather than in the last few weeks of 2025.