With the US election coming to an end and being a hot topic, we thought we would look into the impact Trump had on inheritance laws during his last presidency and what future laws may be put in place now re-elected. During his presidency, Donald Trump introduced policies that significantly impacted estate planning and inheritance tax strategies for families across the United States, particularly high-net-worth individuals. Although he did not implement changes to inheritance laws directly, his administration’s tax reforms affected estate taxes, gift-giving, and wealth transfer tactics. Here’s an overview of Trump’s approach to inheritance tax and estate planning and its impact.
The Tax Cuts and Jobs Act: Raising the Estate Tax Exemption
The most substantial change to inheritance tax policy during Trump’s presidency came through the Tax Cuts and Jobs Act of 2017 (TCJA), a comprehensive tax reform package with wide-reaching impacts on estate planning. The TCJA nearly doubled the federal estate tax exemption, allowing individuals to shield a much larger portion of their wealth from federal estate taxes.
Key Changes under the TCJA:
Increased Estate Tax Exemption: Prior to the TCJA, individuals could transfer up to $5.49 million (adjusted for inflation) tax-free. After the TCJA, this exemption increased to $11.7 million per individual (or $23.4 million for married couples) as of 2021.
Inflation Adjustments: The TCJA allowed for annual inflation adjustments to the exemption amount, which helps offset rising costs and adds flexibility in estate planning.
Expiration in 2026: The TCJA’s increased exemption is set to expire in 2026 unless Congress extends it, at which point the estate tax exemption will revert to pre-TCJA levels (adjusted for inflation).
This higher exemption meant that far fewer families were subject to the federal estate tax, making it effectively a “non-issue” for most Americans. However, for high-net-worth individuals, this exemption has created opportunities for wealth transfer without incurring substantial estate tax liabilities.
Long-Term Planning Considerations
With the current exemption scheduled to decrease in 2026, many families have taken advantage of the larger limits by making lifetime gifts or setting up trusts to transfer wealth while minimizing tax exposure. Estate planners often recommend using these tools now to lock in tax savings before the exemption potentially decreases.
Gift Tax and Generation-Skipping Transfer Tax Impacts
The TCJA’s exemption increase also affected gift taxes and generation-skipping transfer (GST) taxes. These exemptions align with the estate tax exemption, allowing wealthy individuals to make substantial lifetime gifts or establish trusts for future generations without incurring federal taxes.
Gift Tax Implications
Gift Tax Exemption Increase: Under the TCJA, individuals can gift up to $11.7 million (in 2021) during their lifetime without paying federal gift tax, doubling the previous amount. This presents a unique opportunity for families to transfer assets early, reducing the overall size of their taxable estate.
Annual Exclusion Gifts: Beyond the lifetime exemption, individuals can also gift up to $15,000 per year per recipient (as of 2021) without tapping into their lifetime gift exemption. This annual gift exclusion allows for tax-free wealth transfer to heirs over time.
Generation-Skipping Transfer (GST) Tax
The GST tax exemption increase under the TCJA has encouraged many families to consider generation-skipping transfer strategies, such as dynasty trusts, which allow wealth to be passed down multiple generations while minimizing tax exposure.
The alignment of estate, gift, and GST tax exemptions under the TCJA has led to a surge in estate planning strategies designed to reduce potential tax burdens. Many families are using irrevocable trusts, charitable lead trusts, and charitable remainder trusts to secure favourable tax treatment for intergenerational wealth transfers.
Trump’s Estate Planning Approach: Advocating for Permanent Tax Cuts
Trump’s administration expressed interest in making the TCJA’s estate tax provisions permanent, but efforts to extend the act were met with resistance. The high exemption amount created debate among policymakers, with critics arguing that it primarily benefited wealthy families and widened the wealth gap.
While Trump’s attempts to make these cuts permanent did not succeed, the high exemption level continues to allow wealthier families to make large, tax-free wealth transfers. However, political uncertainty around this issue has added a sense of urgency
to estate planning decisions, especially for high-net-worth individuals who could face significantly higher estate tax rates if the exemption limit decreases.
Proposals to Eliminate the Step-Up in Basis
Although the step-up in basis rule was not altered during Trump’s presidency, it remained a contentious topic in estate planning discussions. This rule allows heirs to inherit assets with a “stepped-up” tax basis, meaning that they are taxed only on the increase in value from the date of inheritance rather than the original purchase date.
Impact on Inherited Wealth
The step-up in basis rule can significantly reduce capital gains taxes for heirs, especially for those inheriting high-value assets like real estate or stocks. While Trump did not propose changing this rule, it has been a frequent target for reform under subsequent administrations.
In any event, the potential elimination or modification of the step-up in basis rule has become a pressing issue for estate planners, as losing this benefit would dramatically affect tax liabilities for inheritors of appreciated assets. Future administrations may revisit this rule as a way to increase revenue.
Encouraging Trusts and Other Estate Planning Tools
By increasing the estate and gift tax exemption, Trump’s policies indirectly encouraged the use of trusts, foundations, and other estate planning tools that allow families to transfer and protect wealth tax-efficiently. These strategies allow individuals to:
Reduce Estate Tax Liability: Trusts can help reduce the size of an estate, minimizing potential tax burdens for heirs.
Ensure Asset Protection: Trusts can shield family wealth from creditors, lawsuits, or financial risks, providing security for future generations.
Bypass Probate: Trusts bypass the public probate process, ensuring that wealth is transferred privately to beneficiaries.
For instance, dynasty trusts and generation-skipping trusts have gained popularity as ways to extend wealth transfer across generations without incurring estate or GST taxes.
While these structures have long been part of estate planning, the high exemption amount made available under Trump’s policies has increased the attractiveness of these tools.
Conclusion: Uncertainty and Opportunity in Estate Planning
Trump’s policies on estate planning and inheritance taxes centred on reducing tax burdens for high-net-worth individuals and simplifying wealth transfer options. By raising the estate tax exemption and aligning it with gift and GST exemptions, the TCJA created a favourable environment for large-scale wealth transfers. However, with the 2026 reversion date approaching, many families face a ticking clock on these provisions and may need to accelerate their estate planning.
As the political landscape continues to shift, estate planners and individuals need to stay informed about potential changes in tax policy. Whether or not Trump’s proposals are extended or modified, families should consider taking advantage of current exemptions, planning for possible future tax increases, and using a variety of estate planning tools to secure family wealth for future generations.
