During the campaign trail, Donald Trump proposed an overhaul of the tax code. Among his changes? Repeal the estate tax in its entirety. Following his election, President Trump has maintained that tax reform, including the estate tax repeal, is one of his priorities in his first 100 days in office. So the question is, should I change my estate plan to reflect this change? My advice is this: slow down and stay tuned.
An Estate Tax Repeal Would Have Dramatic Implications
Estate taxes are taxes levied upon the transfer of the estate of a deceased person. Currently, for an individual who died in 2016, there is an exemption of $5.45 million per individual before the tax is imposed. Anything inherited above $5.45 million for an individual or $10.9 million for a married couple is subject to a maximum tax rate of 40%. Clearly, a repeal of the estate tax will benefit the wealthy: people with enormous estates and people who stand to inherit more than $5.45 million. If you are wealthy and are planning your estate, the lack of an estate tax can change your decisions about: (1) whether a trust is necessary; (2) whether distributing your wealth prior to your death is necessary; or (3) whether to leave the bulk of your estate to fewer people, or even just one person.
Tax Reform is Not a Sure Thing
Before you begin calling your financial advisers and attorneys together, keep in mind that nothing is set in stone. First, while repealing the estate tax is part of the GOP agenda, it has not yet made it through either the House or the Senate. Further, there is no guarantee that a bill with sweeping changes will get through to a vote: there may be significant compromises that offset the lost revenue, such as a capital gains tax. So it is entirely possible that while estate taxes may go down to zero, the estate may be taxed an enormous amount on the capital gains realized at the time of death.
Also keep in mind that this could all change again in four to eight years. If the political winds shift, tax reform will shift with it. In 2010, the Bush Administration pushed through an estate tax repeal, which was soon thereafter changed again. So before you make any drastic changes to your estate plan, take a deep breath, wait for the legislature to act, then speak with a lawyer.
Are you interested in planning your estate? Are you concerned by changes in the law and keeping up? Don’t worry, we have you covered. My team and I actively monitor changes in the law and their impact on our clients’ goals. With over twenty years of legal experience, a J.D., and a Master of Law Degree (LLM) in Taxation, I will provide you with precise and professional legal guidance through the whole estate planning process. Call the Law Offices of Robert S. Thomas at 847-392-5893 or visit our website to set up a consultation online.