02/27/2025
Passage of the Act could have a significant impact on estate and wealth transfer planning efforts. Our team of estate planning attorneys and tax professionals will be closely monitoring developments related to the progression of the Act through Congress. We are committed to keeping you informed and will strive to communicate with you to provide relevant and timely guidance to help accomplish your estate planning objectives. In the interim, if you have any questions, please reach out to a member of our team at Wooton, Davis, Hussell & Johnson, PLLC at www.wdhjlaw.com.
On February 13, 2025, Republican lawmakers in the House of Representatives and the Senate introduced the Death Tax Repeal Act (the “Act”). The Act aims to eliminate permanently the federal estate tax, often referred to as the “death tax,” and would significantly alter the future landscape of estate taxation. Variations of the Act have been introduced in Congress each year since 2015 but have failed to become law each time. However, with each reintroduction, support of such legislation has consistently increased year over year.
Background
The Internal Revenue Code (the ”Code”) currently imposes tax on an individual’s right to transfer property to others, both during life and at death. For transfers of property during life, the federal gift tax is imposed at a rate of 40%. For transfers of property at death, the federal estate tax is also imposed at a rate of 40%. However, the Code provides each individual with what is known as the “unified credit,” allowing each individual to transfer a certain value of assets tax-free during their lifetime or at their death. In 2025, the unified credit is $13,990,000. Any amounts transferred in excess of this $13,990,000 figure, either during life or at death, are subject to the 40% tax.
The Code imposes an additional tax, known as the federal generation-skipping transfer tax (“GST Tax”), on transfers to individuals who are in a generation two or more below the transferor, whether those transfers are made during life or at death. However, the Code also provides each individual with an “exemption,” or tax-free amount, before the 40% GST Tax applies. That exemption is currently equal to the unified credit amount of $13,990,000.
Currently, the unified credit and exemption are at an all-time high. Under the first Trump administration, the unified credit and exemption were doubled as a result of the 2017 Tax Cuts and Jobs Act (the “TCJA”). The TCJA has a sunset date of January 1, 2026. This means if no action is taken to extend the TCJA, the unified credit and exemption will return to their pre-TCJA level on January 1, 2026, effectively cutting the current unified credit and exemption in half. If the TCJA does sunset, the unified credit and exemption available to individuals in 2026 will be approximately $7,000,000.
Key Provisions of the Death Tax Repeal Act
Permanent Repeal of the Estate Tax and GST Tax: The Act would permanently eliminate the federal estate tax and GST Tax, allowing individuals passing away after passage of the Act to transfer an unlimited amount of property at death free of tax.
Permanent Gift Tax Exemption and Reduced Gift Tax Rate: The Act would impose a permanent lifetime gift tax exemption of $10,000,000, as adjusted for inflation (adjusted to $13,990,000 in 2025). Effectively, the current unified credit for gift tax would become permanent and would only be used for transfers made during life, as transfers at death would be free of tax as outlined above. Transfers made during life in excess of this exemption would be subject to a reduced 35% tax rate.
Retention of the Step-Up in Basis: The Act would maintain the current “basis adjustment” that occurs at death. In other words, if an individual dies owning appreciated assets, those assets would receive a full “step-up” in basis to the date of death fair market value. This would allow beneficiaries to minimize capital gains taxes upon the subsequent sale of any inherited asset.
