Repealing the estate tax could create headaches for the rich – as well as worsen inequality

The federal estate tax, often called the “death tax,” has been a feature of U.S. tax law since 1916, aimed at taxing property transferred at death. However, the Trump administration and Republican lawmakers are considering the Death Tax Repeal Act as part of a broader tax reform package expected in mid-2025. This legislation would eliminate the federal estate tax and reduce taxes on lifetime gifts. The proposal comes at a significant time: baby boomers are expected to pass on around $84 trillion in assets, the largest wealth transfer in history. While proponents of repeal argue it relieves burdens on families, critics emphasize its role in promoting equality and funding government programs.

Under current law, very few Americans pay the estate tax due to a high exemption threshold—$13.99 million for individuals and $27.98 million for couples in 2025. If Congress does not act, these exemptions will revert to about $5 million (adjusted for inflation) after 2025, affecting more estates. Despite its limited reach, the estate tax sparks ongoing political debate. In 2022, only 0.1% of estates paid the tax, yet it brought in $22.5 billion in revenue. Wealthy individuals often employ complex strategies like “estate freezes” and valuation discounts to minimize their tax liability, passing on billions tax-free while maintaining some control over their assets.

Repealing the estate tax would significantly alter estate planning strategies. Techniques like estate freezes would become less useful, locking in the costs of lifetime gifting without the offsetting benefit of tax savings at death. Moreover, some existing plans are irrevocable and cannot be revised to reflect the new law. While repeal might offer limited short-term tax relief, it could stifle economic growth by incentivizing older individuals to hold onto assets instead of reallocating capital. Ultimately, repealing the estate tax would benefit a small group of wealthy families while depriving the government of significant revenue and weakening efforts to reduce wealth inequality.

For more information see Reid Kress Weisbord and Naomi Cahn “Repealing the estate tax could create headaches for the rich – as well as worsen inequality,” The Conversation, May 7, 2025.

Special thanks to Naomi Cahn (University of Virginia School of Law) for bringing this article to my attention.

https://lawprofessors.typepad.com/trusts_estates_prof/2025/05/repealing-the-estate-tax-could-create-headaches-for-the-rich-as-well-as-worsen-inequality.html