A regular author in these pages explains an important proposed piece of US legislation that advisors to HNW individuals and families need to grapple with – and soon.

The following article, on a potentially large change to how estate taxes are constructed would, if enacted, force private client advisors to sit down with clients regarding their estate plans. As author Matthew F Erskine (pictured below) – a lawyer and regulator contributor to FWR – argues, the proposal is a partial attempt on the Democratic side to claim back some territory lost in the One Big Beautiful Bill Act, which retained the 2017 estate tax thresholds, among other elements. (We examined the OBBBA here and here.) In politics, nothing is permanent, and the uncertainties of tax are part of a constant narrative. 

As ever, if you want to comment on such articles, email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com The usual editorial disclaimers apply to views of guest writers. We thank Erskine for his important insights on this topic.

Matthew Erskine

A new Senate bill – S 4196, the Strengthen Social Security by Taxing Dynastic Wealth Act – would dramatically lower the federal estate tax exemption, cap lifetime gifts at $1 million, and permanently dedicate these tax revenues to Social Security funding. Introduced by Senator Chris Van Hollen with Democratic co-sponsors, the bill is framed as a corrective to "Republicans' tax giveaways for ultra-wealthy estates." For family wealth advisors, estate planning attorneys, collectors, and business owners, the proposal represents one of the most significant potential shifts in transfer tax law in decades. This article explains what S 4196 would do, how it compares with current law, and what planning steps high net worth families and their advisors should consider now.

What S 4196 would do
S 4196 would fundamentally reshape federal transfer taxes in two principal ways: first, by resetting the estate, gift, and generation-skipping transfer (GST) tax regime to roughly 2009 levels; and second, by permanently dedicating all transfer tax revenues to a new unified Social Security Trust Fund. For families with significant wealth – whether held in operating businesses, real estate, art, or financial assets – the bill's provisions represent a material change to the planning landscape.

Estate tax rates and exemptions: A return to 2009 levels
Under S 4196, the federal estate tax rate on amounts over $1.5 million would be set at 45 per cent. The basic exclusion amount – the portion of an estate shielded from tax – would be $3.5 million per individual, or $7 million for a married couple making full use of the portability election.

By contrast, under current law in 2026, the federal estate tax exemption sits at $15 million per individual – far above the $3.5 million threshold proposed by S 4196. The top rate under current law is 40 per cent. 

The bottom line: S 4196 would pull millions of families and business owners whose estates are between $3.5 million and $15 million ($7 million and $30 million for a married couple) back into the estate tax net – people who, under current law, would face no federal estate tax at all.

Gift tax and lifetime transfers: The $1 million cap returns
The bill's treatment of lifetime gifts is notably stricter than its treatment of transfers at death. Under S 4196, the gift tax applicable credit would be calculated “as if the basic exclusion amount were $1,000,000.” In practical terms: even though the estate tax exemption would be $3.5 million, cumulative lifetime gifts could shelter only $1 million from gift tax.

In addition, the deceased spousal unused exclusion (DSUE) – the portion of an unused estate exemption that a surviving spouse can inherit and apply to future gifts – would be capped at the lesser of:
-- $1,000,000, or
-- The decedent’s remaining applicable exclusion, reduced by any portion already used to shelter prior transfers.

Under current law, the gift tax exclusion is unified with the estate tax exclusion – the same high figure applies to both lifetime gifts and transfers at death, and the DSUE available to a surviving spouse can be far larger than $1 million. S 4196 would deliberately sever that unity, reinstating a separate $1 million lifetime gift exemption and significantly tightening the portability rules.

The practical effect: S 4196 creates a strong incentive to favor transfers at death over large lifetime gifts made after 2026 and places an enormous premium on using the currently available high unified credit before the bill's regime would take effect.

Critical effective dates: Your 2026 planning window is closing
The transfer tax changes under S 4196 would apply to estates of decedents dying, and gifts made, after December 31, 2026. This creates a clearly defined “use it or lose it” planning window through the end of 2026, during which clients can still take advantage of the temporarily elevated unified credit for large gifts and other wealth transfer transactions. Advisors who are not already modeling this scenario for affected clients should start immediately.

Beginning January 1, 2027, the bill would also consolidate the current Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI) trust funds into a single new Social Security Trust Fund. All payroll and self-employment taxes for Social Security – plus all revenue generated by the estate, gift, and GST taxes – would flow into this unified fund. The deliberate linkage of transfer taxes to Social Security is not incidental; it is a central feature of the bill's political design.

Social Security linkage: Why this bill is harder to repeal than it looks
Senator Van Hollen and his co-sponsors frame S 4196 as a Social Security solvency measure – reversing what they characterize as Republican-enacted tax breaks for the ultra-wealthy and redirecting the resulting revenue to shore up retirement security. Progressive advocacy groups have endorsed the bill on both inequality-reduction and fiscal-responsibility grounds.

Prior Social Security Administration analysis of a 2019 predecessor bill with similar parameters suggested that dedicating increased estate tax revenues to Social Security would materially improve – though not fully resolve – the program’s long-term funding gap. Crucially for advisors: by formally tying transfer taxes to Social Security, S 4196 would make those taxes significantly harder to repeal in the future. They would no longer be characterized simply as "wealth taxes" but as a direct funding source for one of the most politically popular entitlement programs in American history. 

S 4196 should be understood as an opening position in a broader Social Security funding debate, not necessarily as legislation with immediate bipartisan traction. Prior iterations have failed to advance. However, if a broader Social Security deal is struck in Congress, this bill – or something closely resembling it –could be the funding mechanism.

Wealth transfer planning strategies: What high net worth families should do now
Given S 4196’s proposed $3.5 million estate exclusion, $1 million lifetime gift cap, and 45 per cent top rate – all effective after 2026 – high net worth families, closely held business owners, and serious collectors of art and other collectibles need to rethink both structure and timing. Two themes dominate: (1) use the temporarily high exemption before the end of 2026, and (2) reposition illiquid, appreciation-heavy assets into structures that manage transfer tax exposure, liquidity risk, and control.

Immediate action items: Before December 31, 2026
Quantify exposure under a $3.5 million/$7 million world. Advisors should immediately model each client’s balance sheet – entities, real estate, financial assets, artwork, gemstones, and other collections – against a $3.5 million per-person exclusion and 45 per cent top rate. Clients who would face no estate tax under current law but would be caught by S 4196's lower threshold are the prime candidates for accelerated planning.

Make deliberate use of today’s elevated unified credit while it still exists. Large lifetime gifts completed in 2026 can use the current high exemption. S 4196 would cap future gifts at $1 million but would not retroactively unwind valid 2026 transfers. Priority should go to assets with significant future appreciation potential: operating businesses, growth-equity positions, blue-chip artwork, and high-value collectibles.

Estate planning for closely held business owners
For operating businesses, the central objective is to shift future appreciation out of the taxable estate while preserving effective control. This frequently begins with recapitalizations that create voting and non-voting equity classes for S corporations, or preferred and common interests for C corporations and LLCs. Non-voting or junior interests can then be gifted or sold – typically to trusts before 2027 – ensuring that future growth accrues outside the estate while the founder retains control through voting or preferred interests.

Valuation discounts, properly supported, remain a critical planning tool. For non-controlling, non-marketable business interests transferred to family entities or trusts, meaningful discounts for lack of control and lack of marketability are available. For artwork and collectibles, analogous discounts for bulk sale and illiquidity apply. In both contexts, these discounts materially increase the amount of underlying value that can be moved out of the taxable estate before 2027 without exhausting the available exemption.

Liquidity planning also becomes significantly more important under S 4196's regime. Estates concentrated in closely held business interests with limited liquid assets will face higher transfer tax burdens at far lower thresholds. This argues for carefully structured life insurance programs – typically held in irrevocable life insurance trusts (ILITs) and premium financing plans – as well as well-drafted buy-sell agreements, redemption provisions, or committed credit facilities that allow the business or co-owners to purchase or redeem interests at the owner’s death without triggering a distressed sale.

Art, collectibles, and estate planning: Structures and governance for collectors
For significant artwork and collectible holdings – paintings, sculpture, rare books, coins, gemstones, classic automobiles, and similar assets – the planning objectives mirror those for business owners: move appreciation out of the taxable estate, ensure adequate liquidity for taxes, and minimize family conflict over ultimate disposition.

Purpose-built art or collectible trusts offer an avenue for handling these assets. These trusts are drafted specifically to hold and manage art and collectibles, with tailored provisions governing display, museum loans, insurance, restoration, and sale. Trustees can be supported by an advisory committee or a dedicated art trustee with relevant market expertise. These can also work to “freeze” the value of the assets in the taxable estate at today’s value, transferring the future appreciation to the next generation tax-free over time. Where a client has charitable intent, these trusts can be paired with charitable remainder or charitable lead structures funded with highly appreciated pieces – simultaneously addressing transfer tax exposure, income tax planning, and philanthropic goals.

For businesses, valuation is equally critical. A properly structured buy-sell agreement can establish value for transfer tax purposes, but the agreement must comply with applicable regulations – including the requirements of IRC Section 2703 – and the parties must consistently observe its terms for it to achieve the intended effect.

In all cases, strict regulatory requirements govern how valuations must be documented for gift, estate, and GST tax purposes, including qualified appraisal standards under Treasury Regulation Section 1.170A-17 and the penalty provisions of IRC Section 6662.

For businesses, valuation is also a critical factor in planning. Value can be set with the use of a buy-sell agreement, but the agreement must comply with the regulations, and the family and business must comply with the terms of the agreement for it to have the desired effect. In either case, there are strict regulations on how to document the valuation for tax purposes.

Gifting strategy under the $1 million cap: A two-stage approach
S 4196’s $1 million lifetime gift cap calls for a deliberate two-stage gifting strategy. Before the end of 2026, clients should use the current elevated unified credit for large transfers – particularly business interests and collection assets with high future appreciation potential. After 2026, assuming S 4196 or a similar regime is in place, the $1 million lifetime gift exemption functions more as a fine-tuning tool for incremental transfers and adjustments, rather than as a vehicle for major wealth transfers.

Spousal planning must account for the proposed DSUE limitations. Because the bill caps the DSUE available for gifts at $1 million (or the decedent’s remaining exclusion, if lower), couples will need more precise coordination to avoid stranding unused exclusion in the first estate. Advisors should carefully evaluate whether to emphasize lifetime planning, post-mortem planning, or a combination of both.

The bottom line: Act now, plan for permanence
For clients who own operating businesses, significant art collections, or important holdings of gemstones and other collectibles, S 4196 is not simply another technical tax proposal. It represents a potential return to a far lower transfer tax threshold – one deliberately anchored to the politics of Social Security solvency, making it significantly harder to reverse than ordinary tax legislation. 

The planning imperative is clear: act decisively while today's elevated exemptions remain available; ensure that illiquid and appreciation-heavy assets are held in structures capable of withstanding a tighter tax regime; and build sufficient flexibility into estate planning documents to adapt as the legislative landscape continues to evolve. Advisors who are not already having these conversations with affected clients should begin today.