Estate Tax Exemption Cut from $15M to $7M to Fund New Child Care Grants Starting in 2026

This legislation is a classic two-for-one deal: a major tax change paired with a new social program. Starting December 31, 2025, the bill establishes the Early Childhood Education Trust Fund and funds it by diverting 15% of the revenue collected from the federal estate tax. The money in this new fund is earmarked to flow to states as "child care supply grants," specifically designed to increase the number of child care slots available, which is a huge deal for working parents. These grants are specifically authorized to be in addition to existing federal child care funds, meaning this is intended to be a serious boost.

The Trade-Off: Taxing Wealth to Fund Care

To ensure this new Trust Fund has a healthy bank account, the bill makes a massive change to the federal estate and gift tax. Currently, you can pass on up to around $15 million (adjusted for inflation) tax-free during your life or at death. This bill slams the brakes on that generous exemption, dropping the amount sharply to $7 million per person, effective for estates of people who die, or gifts made, after December 31, 2025. This is the core of the bill: using a significant tax increase on the wealthiest estates to create a dedicated funding stream for early child care.

Who Feels the Pinch (and Who Gets the Help)?

The impact here is split. On one side, the wealthy and their heirs are definitely feeling the pinch. By cutting the tax-free exemption in half—from $15 million down to $7 million—a lot more estates will suddenly cross the threshold and be subject to the federal estate tax. If you’re a high-net-worth individual or family, this means you need to update your estate planning ASAP because the rules of the game are about to change dramatically, potentially leading to much higher tax bills for your beneficiaries.

On the other side, parents struggling with the cost and scarcity of child care could see real relief. The Trust Fund money is specifically for "child care supply grants" to states. Think of it this way: if your state gets this grant money, they have to use it to increase the supply of child care. This could mean helping existing centers expand, assisting new providers with startup costs, or subsidizing training for more workers. For a family in a child care desert, this could mean the difference between a long waitlist and finally securing a spot.

Grant Rules: Flexibility vs. Oversight

One detail worth noting is the administrative side of these new grants. The bill gives the Secretary of Health and Human Services (HHS) the authority to waive certain existing administrative rules when distributing this new grant money. While this flexibility could allow the Secretary to move funds quickly and adapt to state needs without being bogged down by red tape, it’s also a provision that gives the agency significant discretion. It means that some of the accountability and transparency requirements currently in place for other child care grants (found in sections 658E and 658G of the existing law) might be set aside for this new funding stream. We’ll need to watch closely how HHS uses this waiver power to ensure the money is spent efficiently and fairly across the states.