Taxing Dynastic Wealth Act: What It Could Mean for Estate Planning

Protecting and Preserving Wealth Episode 96 – The Bill That Could Rewrite Estate Planning

Speakers: Bruce Hosler, Jason Hosler, & Alex Koury, & Jon Gay

[Intro Playing]

Jon Gay (00:05):

Welcome back to Protecting and Preserving Wealth. I’m Jon Gay with Bruce Hosler, Jason Hosler, and Alex Koury of Hosler Wealth Management. Hello, gentlemen.

Bruce Hosler (00:11):

Hello, Jon.

Jason Hosler (00:12):

Good to be back, Jon.

Alex Koury (00:14):

Good to see you again, my friend.

Jon Gay (00:15):

Alright, so quick question before we even talk about the topic of today’s show. If I told you that under a bill sitting in the Senate, the US Senate, right now, the federal estate tax exemption could drop from $15 million to just $3.5 million, would that change anything about your estate plan?

You might be thinking, did I hear him right? Well, you did. And it’s real.

It’s a real bill, real text introduced by a real bona fide sitting senator. It is not law. We’ll say that upfront, we’re going to say it several times throughout this episode (not law), but it is one of the more useful things we can talk through this year because what it tells us about the direction of where things are headed, not just this one piece of paper.

So, today, we’re digging into the long name: Strengthen Social Security by Taxing Dynastic Wealth Act. (Say that three times fast, that’s really the name.) We’re going to explain what it actually does, how it stacks up against the law as it exists today. We’re recording this on August 25th of 2026.

Then we’ll run some real numbers on what it would mean for a high-net-worth estate. And then the part we may care about the most, what you can do about it regardless of whether this specific bill even sees a floor vote. So, Bruce, let’s walk through it. Where does this thing sit right now?

Bruce Hosler (01:30):

So, right now, Senator Chris Van Hollen has submitted the bill. It hasn’t even gone or cleared through committee yet, but it has been submitted and it hasn’t been heard by the entire Senate. But he is a Senator and it just indicates the thinking of … the purpose of this is strengthening social security. They’re trying to save social security.

Jon Gay (01:55):

We talked about that in our last episode, where that could be in trouble.

Jason Hosler (01:58):

We did. Some of the things that might change.

Bruce Hosler (02:00):

They’re going from $15 million that the One Big, Beautiful Bill took and they’re dropping it back down to $3.5 million that we had years ago. So, this is going to be a scoop that is going to scoop up not just the rich and the wealthy, it’s going to scoop up a big portion of middle America.

If you own a little bit of real estate, if you own a business, if you’ve been successful in saving in your retirement plan to provide for your family, this is going to separate you from your money eventually.

Jon Gay (02:30):

Three and a half million may sound like a lot of money on the surface, but when you look at what people have in their retirement accounts, it’s more people than you might think.

Bruce Hosler (02:37):

Absolutely. The other thing that we want to talk about is there’s a couple of other things that are very important takeaways. So, it’s going to separate the lifetime cap of gifting, the tax exemption, which is now $15 million. It’s going to limit that to a million dollars during your life.

Jon Gay (02:58):

Wow.

Bruce Hosler (02:59):

So, if you’re trying to give money to your kids and help them out, you can only do that up to a million dollars during your entire life. And the top estate (tax) rate gets raised from 40% to 45% on graduated brackets. The spousal portability (this is a big deal) – I have 15 million, my wife has 15 million. As a couple, we could have up to 30 million.

Now, if I die first and we haven’t used it all, my wife can only use a million dollars of my 15 million exemption. So, if she’s getting 3.5 and there’s a million on top of it, all that can be saved as a couple is 4.5 million versus 30 million. You want to think about a haircut, I mean, that’s worse than what I have. There’s nothing left after that haircut.

Jon Gay (03:49):

Now, you’ve got my haircut. (Laughs)

Bruce Hosler (03:50):

Yes, yes. And then lastly, 100% of the revenue would be redirected to a new merged social security trust fund. So, they’re going to take two trust funds and put that together. Now, again, this is not a bill that’s in law, so we don’t mean to scare everybody, but we haven’t seen anything proposed that would cut it back like this. This is very scary.

Jon Gay (04:14):

That’s a good overview, Bruce. Let’s get into the actual mechanics. What does the bill change?

Alex Koury (04:19):

There’s four things that are changing here. The first one, this is the headline that everyone reads, it’s going to cut that federal estate and gift tax exclusion, again, to $3.5 million per person. Now, that goes all the way back to 2008, I believe, the last time that the exemption was that low.

It’s going to be a flat number, not indexed for inflation, which is also notable because again, if they’re going to cap you at three and a half, but your money keeps growing above that as your assets continue to grow, it could become a bigger, bigger problem in the future.

Today, under the One Big, Beautiful Bill Act that was passed in 2025, again, the exemption today is $15 million per person or $30 million as a married couple. And it’s permanent today. There’s no sunset forecast. It’s also indexed for inflation, so that will continue to rise as assets go up in value.

But again, going from 15 million to three and a half million, which is the proposal, that’s about a 77% cut to the exemption amount. So, you can just imagine how many more estates will be included potentially in this number that could be a taxable event for many, many, as Bruce mentioned, upwards of 40% taxes, anything above those exemption limits.

Jon Gay (05:32):

Gotcha. Alright, Jason, let’s move number two.

Jason Hosler (05:35):

This one’s sneaky and I think it’s more aggressive. So, the bill is separately capping the lifetime gift and it’s pulling that out of the combined gift and estate exemption. And so, that one’s getting lowered to just a one million dollar lifetime gift exemption.

So, you’ll have your three and a half million estate, one million gift, and that new gift limit would stop a big strategy, which is that a lot more couples and retirees are choosing now to accelerate inheritance while they’re still alive, and they’re implementing gifting strategies and lending strategies to the next generations.

It’s going to discourage this exact strategy that’s become a backbone of estate planning. You move appreciating assets out of your estate early through your lifetime gifts. So, if you have a closely held company or some company stock or something else that’s going to highly appreciate, you believe in the future — if you can gift that now, well, it’s worth less, and then that grows in the next generation’s estate, you’ve avoided a big estate tax, but this is going to take a scalpel to that specific tool.

Jon Gay (06:43):

Okay. Bruce, what’s number three?

Bruce Hosler (06:46):

So, it’s the tax rate. So, right now, the estate tax is at 40%. This will be graduated. So, if you’re about a million and a half over the 3.5 million, so let’s say you get to about $5 million of estate, you will now step up, the tax will be at 45%, not 40%. So, it’s much higher.

I mean, if you’re trying to leave money to the kids, this is going to limit how much you can do and it’s a higher tax that they’re going to charge on the estate tax.

Jon Gay (07:20):

And what’s finally the fourth item here?

Bruce Hosler (07:23):

Portability. And this is really the big one because what happened previously is we were allowed to have portability from one spouse to the other. So, if I have an exemption of 15 million and my wife has exemption of 15 million, as a couple, we can have $30 million that’s available.

The bill caps the deceased spouse unused exclusion at the lesser of $1 million or whatever is actually left over. So, if you were just 500,000 or 200,000 over the 3.5 million, it would only be that, but the maximum is a million. So, as a couple, 3.5 with a million more, the most you can leave is 4.5 million.

Jon Gay (08:03):

That’s really kind of a gut punch we’re talking about couples have been planning around that $30 million for, probably, even decades.

Alex Koury (08:11):

It is. And one important detail about this as well is that the bill’s effective date is for deaths and gifts after December 31st of 2026. So, even in this hypothetical world we’re talking about today, because this is not law, in this world as it’s written, there at least would be a little bit of runway before it would be applied.

Jon Gay (08:30):

Got it. And the social security piece, again, we did a podcast about this two weeks ago. I’d encourage you to go back and listen to our previous episode. Social security is in the name of the bill.

Alex Koury (08:39):

That’s right. So, what are they really attempting to do? As we alluded in our previous podcast is what we’re trying to accomplish. What they’re trying to accomplish is fixing the social security problem. So, if they could take all this extra revenue that they generate from lowering these exemption limits, they would thrust all that money into social security to try and refund it and get it grown again.

I mean, that’s really what they’re trying to figure out here, is to extend those benefits, especially for those senior citizens that really need the money. Of course, if you’re taking it, you don’t want to ever see your benefits be decreased. This is what they’re trying to really fix for the long term.

Jon Gay (09:17):

Got it. Alright, so let’s talk about what this looks like in dollars, in practice, in real life, in concrete. Jason, walk me through a hypothetical estate, if you would.

Jason Hosler (09:26):

Sure. So, let’s take a business owner, a single business owner, and let’s say he’s got a $20 million estate. That’s actually fairly typical these days for someone who’s built a business over a 30-year career and is now going to sell their company and retire. So, under today’s law, 20 million minus the 15 million exemption leaves 5 million taxable. So, that would be taxed at 40%. That would be a $2 million estate tax bill.

Jon Gay (09:55):

Okay.

Jason Hosler (09:56):

If we look under this new proposed bill, 20 million minus three and a half million, so that’s 16 and a half. We tax that at 45%. So, that would be a tax of 7.3 million.

Jon Gay (10:09):

I want to make sure I understood you correctly there, Jason. We’re talking about the same estate. Currently, there’d be $2 million in taxes. Under this proposed bill, again, still in committee, not even on the floor, that $2 million tax bill is now a $7.3 million tax bill.

Jason Hosler (10:27):

That’s right. Same assets, same family, same decisions, and it’s triple the tax.

Bruce Hosler (10:33):

Now, let’s do the married couple example because the portability change is honestly the bigger story for a lot of our clients.

Jon Gay (10:40):

Sure.

Bruce Hosler (10:41):

So, take a couple with a combined $30 million estate. Today, portability, 30 million minus the combined 30 million, the exemption is zero, no estate tax. But under the bill, say that the first spouse dies and most of their 3.5 million is unused, their surviving spouse doesn’t get the whole additional leftover amount, only up to a million dollars.

So, the couple’s effective shelter is only 4.5 million, 3.5 plus another million. Not 7 million, and nowhere close to the 30 million. So, on a $30 million estate, that leaves around 25.5 million taxable. The tax would be somewhere north of 11 million on the estate tax on a couple who currently would owe nothing.

Jon Gay (11:30):

Wow, that is not a tweak. That’s a whole different tax regime. This isn’t rates going up just a little bit. This is a structurally different system. Lower exemption, decoupled gift exemption, higher graduated rates, gutted portability as Bruce just mentioned, all stacked on top of each other.

So, again, we said this before, it’s worth repeating several times throughout the podcast. This bill is not law. It might not ever even be law. But the trajectory matters, as we said from the top. So, Alex, what does a high-net-worth family actually do with this information today?

Alex Koury (12:04):

First thing as well to mention is that, again, these are planning ideas, right? You don’t want to head to one way further than the other because this may be a nothing burger. Things may stay as they are.

But with that being said, let’s look at what’s available now, like we talked about many times in the podcast today. You each have a $15 million exemption, husband and wife. Everyone does. I have one, Jason has one, everyone has one today.

So, you should consider using it in a way that you can take advantage of what’s available today. And for anything else, especially what we’re seeing more today anyways, is in this discussion of the great wealth transfer is more parents and families want to see their children benefit using the money while they’re still alive, than after they’re dead.

Jon Gay (12:52):

Right.

Alex Koury (12:53):

So, think about that from a bigger perspective is what do you actually need to live on for your retirement? What goals do you have left? What traveling do you have to do? So forth and so on. Maybe start looking at it from a different lens of let’s start giving more money away now while we still can, and while we still have this big exemption today before it potentially goes away in the future.

Jon Gay (13:12):

Alright. What about structurally, Jason? Alex is right when he says gift more, but structurally, how do we do this?

Jason Hosler (13:18):

Well, you want to make those permanent gifts, and you want to do it with a structure that is going to allow you to really move appreciating assets out of that estate now. Some of the tools would be different irrevocable trust structures.

So, you have things like spousal lifetime access trusts, intentionally defective grantor trusts, dynasty trusts and jurisdictions with favorable trust law. But the idea is the same. We want to move interest, especially ones that are going to increase in value and appreciate out of the estate.

You can do that now under the current law and permanently use that exemption, that gift, and now it’s locked in. Even if they change it in the future, you have already completed that gift.

Jon Gay (14:08):

And the generation skipping piece, you mentioned that earlier as a footnote.

Bruce Hosler (14:11):

Yeah. So, the generation skipping tax is worth just a call out. So, that’s where grandparents are wanting to leave money to the grandchildren. And right now, it has the same basic exclusion. So, you have 15 million per person or 30 million for the family. If that number gets so cut, then the generation skipping exemption gets cut right along with it automatically, without Congress needing to do anything else.

So, for families thinking about multi-generational trusts, allocating the GST exemption to a trust now while it’s 15 million instead of 3.5 million could lock in a capacity permanently for the trust. Now, I just want to add one last though here as we kind of bring this to a close.

We feel like the easy target for Congress and for the public is, “Let the tax be paid by the rich.” AOC wore the dress to the Met Gala, “Tax the rich.” Folks, if you have a trust in an estate, many other people in the public feel like you’re the rich and you should be taxed. But many families with the cost of inflation and everything like this, it costs more. You have to have more. You have to have a trust.

And so, these changes could be dramatic for many families if, in fact, they are ever passed. But we feel like this is kind of a general trajectory. It could end up partially like this. Parts of this could be included. It could be something like this. We’re trying to awaken you to this is the thought that is currently being projected in Congress, and we feel like it’s a directional change than what we’ve seen.

And with the Social Security Trust Fund running insolvent in 2032, we feel like there’s going to be steps like this that Congress is going to consider taking to try and close the gap.

Jason Hosler (16:06):

And you know how they’re marketing, how they’re selling this — it’s a tax increase sold as funding Social Security. They’re tying it to the Social Security program specifically within the language of the bill. So, as we approach the 2032 problem, I think we’re going to see more and more things like this that are tied specifically to that problem.

Jon Gay (16:27):

This is all really good stuff to think about. And again, I feel like it’s incumbent upon me to mention this is not law, this is a bill that is still in committee. But as three of you have all illustrated throughout the last 15 minutes or so, this is an indication of where we might be headed.

So, you want to have a plan for any kind of contingency or where things might be going to protect yourself in case something — in the case this bill or anything like this bill were to transpire.

Bruce Hosler (16:52):

The last thought on this that I want to share with our listeners is folks, if you’re asking yourself, what could you be doing that could help you? I would say that you want to look at flexibility, and flexibility means liquidity.

So, if you’re a business owner with a business or you own real estate, these are assets that may be difficult, that may take a time to sell. I know in my own family, we have some real estate, it’s been up for sale for a while now, and we haven’t been able to sell it. You just don’t want to give it away.

So, if there’s anything that you do, you might think about moving some of your assets to more liquid assets, and then you could put some into some of these different trust structures. You could structure things differently. If all your money is tied up in a business or a big piece of real estate, you lose flexibility.

So, if there’s anything that comes out of this, I would say, you might start looking at that right now and consider creating some flexibility for your family.

Jon Gay (17:53):

I think it’s a great place to leave it. If our listeners or viewers want to get in touch with your team at Hosler Wealth Management, what are the best ways to find you?

Bruce Hosler (17:59):

We love it when you reach out to us on the website at hoslerwm.com. In Scottsdale, Alex, where do they reach you?

Alex Koury (18:06):

Yeah, give us a call at 480-994-7342.

Bruce Hosler (18:10):

And up in Prescott, Jason?

Jason Hosler (18:12):

928-778-7666.

Jon Gay (18:16):

Alright gentlemen, good stuff as always. We’ll talk again soon.

Jason Hosler (18:19):

Thanks, Jon.

Jason Hosler (18:20):

See you later, Jon.

Alex Koury (18:21):

Until next time.

[Outro Playing]

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