New Federal Estate Tax Proposal

Senator Chris Van Hollen of Maryland, has introduced a bill that would roughly take the federal estate tax regime back to 2009.  The purpose of the bill, “Strengthen Social Security by Taxing Dynastic Wealth Act,” is to add revenue to the Social Security system, which is in danger of running short of funds next decade.  According to recent reports, the trust fund could run out of money after 2032, at which point the annual collected taxes would be enough to fund only 78% of earned benefits.

The Van Hollen bill would direct all collections of the federal estate and gift taxes into the Social Security trust fund, rather than the general fund as under current law.  The following changes to the law would also be included:

            • the amount exempt from federal estate tax would be reduced from the current $15 million to $3.5 million per taxpayer;

            • the amount exempt from federal gift tax would be reduced from the current $15 million to $1 million;

            • inflation indexing of the exemption levels would be eliminated;

            • the estate and gift tax rate would be boosted to 45% from the current 40%;

            • the deceased spouse’s unused exclusion (DSUE) could be used for only $1 million of lifetime gifts;

            • the exemption for the generation-skipping transfer tax would be reduced in parallel with the estate tax exemption, that is, limited to $3.5 million.

Oddly, the proposal would have almost no effect on truly dynastic wealth; billionaires would scarcely notice the change in exemptions.  The bill does not address the many estate planning strategies available to the truly rich to avoid estate and gift strategies.  For example, dynasty trusts and grantor-retained annuity trusts would continue to be an option.

There is little chance for passage of the Van Hollen bill in the current Congress.  However, several states are already exploring ways to increase taxes on those at higher wealth levels.  As the Social Security trust funds continue to dwindle, it could be possible for the Van Hollen bill or something similar to gain traction.

(September 2026)

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