Important Update: Major Federal Estate Tax Proposals Could Radically Alter Planning Strategies

Dear Clients, Colleagues and Trusted Advisors,

There have been several noteworthy estate and gift tax proposals recently introduced in both the House and Senate that—if enacted—could fundamentally reshape the estate planning landscape.

Among the most significant developments:

• A proposal to extend all provisions of the 2017 Tax Cuts and Jobs Act (TCJA) — including the historically high federal estate, gift, and generation-skipping transfer (GST) tax exemptions, currently set at $13.99 million per individual in 2025 (and scheduled to sunset to approximately $7 million on January 1, 2026, adjusted for inflation);

• A separate proposal to repeal the federal estate tax entirely while retaining the gift tax and continuing to allow a full step-up in income tax basis at death.

Each of these proposals—whether implemented in full, in part, or not at all—raises critical and complex issues for high-net-worth individuals and their advisors.

Why These Proposals Matter—Even If They Don’t Pass

1. Estate Tax Repeal Sounds Simple. It's Not. While the repeal of the federal estate tax might sound like a planning windfall, the consequences are far from straightforward. Many wills and revocable trusts currently use “formula clauses” that allocate assets based on federal estate tax definitions—such as the applicable exclusion amount or marital deduction. If the estate tax is repealed, those formulas could behave unpredictably, unintentionally disinheriting beneficiaries or misallocating assets.

Revising these formulas will not be optional—it will be essential to preserve intended distributions.

2. Lifetime Planning May Become More Constrained. Even in a scenario where the estate tax is eliminated, the gift tax remains under the latest proposal. This restriction could discourage clients from making lifetime transfers to family members or irrevocable trusts—key components of many advanced planning strategies. In addition, the retention of the step-up in basis at death—without estate taxation—would be an unprecedented tax benefit and create strong incentives to hold appreciated assets until death.

3. Uncertainty Is the New Normal. Whether the current exemption is allowed to sunset in 2026, extended, or replaced with an entirely new regime, we are entering a period of legislative uncertainty. In this environment, proactive estate planning becomes more—not less—important. The cost of delay could be significant, particularly for those who have not yet utilized their available exemption before it potentially shrinks.

What You Should Be Doing Now

Given the range of possible outcomes, we strongly recommend reviewing the following with your estate planning attorney and advisors:

• Review your current estate planning documents. Any formula-based distributions tied to estate tax law should be carefully revisited.

• Model multiple tax scenarios. Understand how your plan functions under (i) current law, (ii) sunset of the bonus exemption in 2026, and (iii) potential repeal.

• Evaluate lifetime gifting strategies. With the gift tax remaining in play, it’s essential to consider whether to lock in current exemptions before legislative changes take effect—or become unavailable.

• Build flexibility into your estate plan. Tools such as disclaimer provisions, powers of appointment, and trust protectors can help your plan adapt to an uncertain tax environment.

Final Thought: Stay Ahead of the Curve

At Lara Sass & Associates, PLLC, we are closely tracking these developments and proactively advising our clients on how to position themselves regardless of which direction Congress ultimately takes. While no one can predict legislative outcomes with certainty, the best planning prepares for multiple futures.

If you haven’t reviewed your estate plan in the last few months, now is the time. Let’s ensure that your documents are robust, flexible, and optimized for the opportunities and risks ahead.

Please don’t hesitate to reach out if you’d like to schedule a consultation or review.