Many families are watching closely as lawmakers debate big changes to estate and gift taxes. One proposal would make a temporary high exemption permanent. Another would replace the estate tax entirely. While the details are still in the works, these changes could affect how much your loved ones might pay in taxes after you’re gone. Let’s break it down in simple terms.
What Is the Estate Tax?
The federal estate tax is a tax on money and property passed on when someone dies. As of 2025, the exemption is $13.99 million per person. That means if your estate is worth less than that, it won’t be taxed. For married couples, the total exemption is nearly $28 million.
If your estate is larger than that amount, anything above the limit gets taxed at 40 percent. But unless Congress acts, the current exemption will drop to about $7 million per person in 2026. This scheduled drop is often called the “sunset” of the current tax law.
What Did Trump Propose?
There are actually two different ideas connected to Trump-era tax plans.
First, there’s a bill that would lock in a $15 million exemption per person permanently. That’s even higher than the current amount, and it would be indexed for inflation each year. The tax rate would still be 40 percent for anything over that amount, but fewer estates would be taxed overall.
Second, Trump also once proposed getting rid of the estate and gift tax altogether. His idea was to replace it with a capital gains tax on unrealized gains above $10 million. That means instead of taxing the full value of your estate, the tax would only apply to how much the assets went up in value while you owned them. It would work sort of like how capital gains are taxed when you sell investments.
Comparing the Two Ideas
Let’s look at what this might mean using a simple example. Imagine someone has a $20 million estate.
Under current 2025 law:
- Exemption: $13.99 million
- Taxable amount: $6.01 million
- Tax owed (at 40%): about $2.4 million
If the law sunsets in 2026 and the exemption drops to $7 million:
- Taxable amount: $13 million
- Tax owed: around $5.2 million
If the $15 million exemption becomes permanent:
- Taxable amount: $5 million
- Tax owed: about $2 million
If the estate tax is repealed and replaced with a capital gains tax:
- Only unrealized gains above $10 million are taxed
- Assuming a $1 million gain is taxed at 20%, the tax owed might be $200,000
As you can see, the way your estate is taxed can vary a lot depending on which plan becomes law.
What Else Is in the Bill?
The proposal to lock in the $15 million exemption includes a few key points:
- Keeps the estate, gift, and generation-skipping transfer (GST) tax exemptions at $15 million per person
- Indexed for inflation, so it could grow slightly every year
- Keeps the top tax rate at 40 percent
- Removes the uncertainty of the 2026 sunset
But even with these benefits, not everyone agrees. Critics argue the bill mainly helps the wealthy and could increase the federal deficit by more than $200 billion over 10 years. Still, for families planning to pass down large estates, this could offer more flexibility and fewer taxes.
Why the Step-Up in Basis Matters
One thing that can make estate planning tricky is the “step-up in basis.” This rule allows heirs to reset the value of inherited property to the market value on the date of death. This usually means less capital gains tax when they sell it later.
If the estate tax is replaced with a capital gains tax, lawmakers would need to figure out how to handle the step-up in basis. Without it, heirs might face large tax bills on assets they never sold.
Should You Still Do Estate Planning?
Yes. Even if your estate is below the exemption limit, there are other reasons to create or update your estate plan. For example:
- You can name who should get your property and personal items
- You can set up powers of attorney and health care documents
- You can create trusts to protect young or disabled family members
- You can plan for any state-level estate or inheritance taxes
Also, if you expect your estate to grow or you’re already near the exemption limit, it’s smart to make plans now. Gifting during your lifetime or using certain types of trusts might help lower future taxes, especially if the sunset happens and the exemption gets cut in half.
Planning Ahead for 2026 and Beyond
The future of estate and gift taxes is still uncertain. Congress may act to make the exemption permanent, or it might let the current law expire. No one knows for sure.
If you have a larger estate or expect to in the future, consider speaking with a lawyer now. Waiting too long could limit your options. Some strategies, like certain gifts or irrevocable trusts, need time to be set up and work best before tax laws change.
Call Today to Review Your Estate Plan
If you’re unsure how these tax proposals could affect your estate, it’s a good idea to get answers now. You don’t have to make all the decisions at once, but having a plan in place gives you and your family more peace of mind. Call (910) 777-5734 to schedule a time to talk with our estate planning attorneys about your options and build a plan that works for your goals, no matter what the law looks like in 2026.