Estate Taxes Under a Second Trump Administration
It’s official. Donald J. Trump will take office as the nation’s 47th president in January 2025. With the upcoming expiration of the Tax Cut and Jobs Act (TCJA), what can we expect a second Trump Administration to do to the estate tax?
In 2012, the American Taxpayer Relief Act (ATRA) was signed into law by President Obama. ATRA set and made permanent a $5 million estate tax exemption (indexed for inflation) and a top estate tax rate of 40%. ATRA also introduced portability, a surviving spouse’s ability to claim any exemption not previously used by her deceased spouse. By the end of the Obama Administration, the estate tax exemption was $5.45 million.
In 2017, President Trump, with a Republican majority in both the House and Senate, signed the Tax Cut and Jobs Act (TCJA) into law. The TCJA temporarily doubled the estate tax exemption through the end of 2025. The IRS recently announced that the estate tax exemption will be $13.99 million in 2025.
Under current law, the temporary increase in the estate tax under TCJA will sunset at the end of 2025. In 2026, the estate tax will revert to previous amounts under ATRA. Without intervention by the second Trump Administration, we can expect to see a reduction of the estate tax exemption to about $7 million.
Will TCJA Tax Cuts Be Permanent?
President Trump has campaigned on the promise that he will make the tax cuts under the TCJA permanent. However, it remains to be seen whether he will be able to pass such legislation. While the Senate has already gained the majority, without the House, uncertainty persists.
Those with a net worth between $7 million ($14 million for married couple) and $13.99 million ($27.98 million for married couples) will be anxiously awaiting to see if President Trump will be able to extend TCJA or make it permanent. If legislation is not passed by the end of 2025, families will be scrambling to do last minute planning or risk losing the increased exemption.
Although gifts to spouses (SLATs) or children (Dynasty Trusts) are quite common for our clients, these structures are often used when the estate tax is inevitable in a larger estate or when the family has other reasons to create those trusts (e.g. asset or spousal protection). For those families that are considering using the currently larger exemption before it expires, they may choose to wait to see if legislation is likely to pass before the end of 2026. However, in my experience, waiting too long will limit your planning options since many professionals are involved in this type of planning (attorneys, financial advisors, CPA, real estate appraisers, discount appraisers, and more).
Families must also be aware of how any estate tax planning affects other tax issues, such as income taxes and property taxes (especially in California). These tax issues must all be balanced to determine the most effective plan for each family.
We will continue to actively monitor any proposed legislation over the next 14 months.
Tiffany K. Chiu is a Partner at Modern Wealth Law, APLC. Tiffany is a skilled bilingual (Mandarin and English) estate planning attorney who caters to the needs of individuals, families, and small business owners in Orange County. She has extensive experience in drafting documents related to formation, financing, reorganization, conversion, and dissolution of joint ventures, partnerships, limited liability companies, and corporations.
