As President Trump begins his second term, his administration is poised to revisit tax policy, with significant implications for estate and gift taxes. The Tax Cuts and Jobs Act (TCJA) he enacted in his first term is scheduled to expire at the end of 2025. This article examines Trump’s proposed tax plan and its potential effects on the estate and gift tax exemptions.
At the end of this article, I've included a chart showing the estate and gift tax exemptions and rates from 1996 - 2025.
Current Law: A Snapshot of 2025
To understand the stakes, let’s review the current framework. The TCJA, enacted in 2017, significantly increased the lifetime estate and gift tax exemption from $5.49 million per individual in 2017 to $11.18 million in 2018. Adjusted annually for inflation, this exemption has reached $13.99 million per person in 2025—nearly $28 million for a married couple. The generation-skipping transfer (GST) tax exemption, which allows tax-free transfers to grandchildren or beyond, has followed the same trajectory. Additionally, the annual gift tax exclusion, allowing tax-free gifts to any number of recipients each year, stands at $19,000 per recipient in 2025.
Absent Congressional action, these exemptions are set to revert to pre-TCJA levels—approximately $7 million per individual, adjusted for inflation—on January 1, 2026. This reduction would substantially increase the taxable portion of larger estates, making the outcome of Trump’s tax proposals highly consequential.
Trump’s Proposed Tax Plan: Key Elements
While detailed legislation has yet to emerge, Trump’s campaign rhetoric and Republican policy priorities suggest a strong intent to extend the TCJA’s estate and gift tax provisions beyond 2025, potentially making them permanent. This would preserve the current $13.99 million exemption (subject to future inflation adjustments) rather than allowing it to shrink to half that amount. Some within the administration have even revived discussions of abolishing the estate tax entirely, a proposal that surfaces periodically but most likely won't happen.
The estate tax currently imposes a 40% rate on amounts exceeding the exemption. For example, a $20 million estate in 2025 incurs tax on $6.01 million, resulting in a $2.4 million tax bill. If the exemption drops to $7 million in 2026, the taxable amount rises to $13 million, yielding a $5.2 million tax bill. Retaining the higher exemption could thus save substantial sums, particularly for families with significant wealth. The GST tax, which also carries a 40% rate, would similarly benefit from a sustained high exemption, supporting multi-generational planning.
Trump’s advocacy for these changes reflects a view that the estate tax constitutes an unfair burden, often described as “double taxation” on assets taxed during one’s lifetime and again at death. Critics counter that it affects only a small fraction of estates—fewer than 7,000 in 2024, according to the Tax Policy Center—yet the tax can pose a significant challenge for those impacted, such as business owners or farmers with illiquid assets.
Implications for Estate Planning
Should Trump’s plan succeed, the implications for high-net-worth individuals are considerable. A permanent $13.99 million exemption would provide ongoing flexibility to transfer wealth without federal tax consequences. Coupled with a matching GST exemption, this could enhance strategies like dynasty trusts, which preserve assets for future generations. The annual exclusion of $18,000 per recipient would remain a valuable tool for gradually reducing an estate’s taxable value.
However, the plan’s success is not guaranteed. Extending the TCJA carries an estimated cost of $4 trillion over a decade, plus $600 billion in interest, per the Congressional Budget Office. This fiscal impact may face resistance, even within a Republican-controlled Congress, potentially leading to a compromise with lower exemptions or no extension at all. This uncertainty underscores the importance of proactive planning.
Strategic Considerations and the Capital Gains Tax Trap
Given the potential outcomes, now is an opportune time to review your estate plan. The IRS has confirmed that gifts made under the current higher exemption will not be subject to “clawback” if the exemption decreases in 2026. This means you could gift up to $13.99 million per person—or $27.98 million per couple—before year-end with no gift or estate tax.
But beware of the capital gains tax trap: Inherited assets receive a step-up tax basis, gifted assets do not.
For example, you bought your home for $300,000, so your tax basis is $300,000. When you die, your home is worth $1.5 million. But when your children inherit it, their tax basis will be the date of death value of $1.5 million - their basis is "stepped-up" to the date of death value. If they sell it soon after your death, there won't be a capital gains tax: sale price $1.5 million minus step-up tax basis $1.5 million = $0 capital gain.
In contrast, if you gift your home to your children while you are alive, their tax basis is your tax basis, $300,000. If they sell it, the capital gain will be: sale price $1.5 million minus $300,000 basis = $1.2 million capital gain, and the federal and California capital gains tax would be approximately 26% or $312,000.
Given the capital gains tax trap, the best scenario is for your children to inherit your highly appreciated assets through your living trust on your death and receive a step-up tax basis. But if you have a large estate and you are worried the estate tax exemption will drop to $7 million, then you have to consider whether it's better to avoid the estate tax or the capital gain tax. Usually the estate tax is the higher tax.
Conclusion
President Trump’s proposed tax plan holds the potential to positively reshape estate and gift tax policy, either by preserving the TCJA’s generous exemptions or, more ambitiously, eliminating the estate tax altogether.
While there may be a better than a fighting chance the TCJA will be made permanent, which would eliminate the fear of an estate tax for most people, you need to pay attention. We should know in the next few months what Congress and the President will do, and then you can take action as needed.
The chart below illustrates how the estate and gift tax exemptions and rates have changed over the years.
Estate and Gift Tax 1996-2025