Estate Tax Reform Appears Imminent: What are Your Options?

At the time of writing this article, as 2016 is coming to an end and we contemplate January’s inauguration of Donald Trump as our next President, there is speculation over expected tax law changes. When coupled with the Republican Congressional sweep, Mr. Trump’s election increases the likelihood of significant tax reform, including repealing the estate tax. While this may sound like news you have heard before (remember the 2010 estate tax repeal?), we would suggest anyone who has, or may have, a taxable estate under current law begin reviewing their estate plans and consider implementing changes as details of expected new legislation become known. What should you do? We suggest:

• Review your overall plan and determine whether it will meet your goals and desires in the event the estate and generation skip transfer (GST) taxes are repealed. Consider including alternative provisions to take effect in the event these taxes do not apply.

• Carefully evaluate formula clauses to make sure they will work as intended if the estate tax and GST are repealed.

• Talk to your estate attorney to insure your plan is sufficiently flexible to accommodate future changes in the law.

• Consider delaying taxable gifts until Congressional proposals are released so you can understand the gift tax and basis ramifications of these transfers.

• Discuss the interplay of income tax and capital gains planning with your estate attorney as these will become significant considerations upon an estate tax repeal.
• Make sure you know whether you own assets in states that impose an estate tax since estate tax planning will continue to be helpful in these jurisdictions.

Which estate tax reform measures will pass and when they would become effective is still unknown. Currently, all of the proposed Republican tax policies suggest a repeal of the estate tax, and a repeal could take place immediately upon passage of new laws, or retroactively to January 1, 2017. While a mid-term effective date is always possible, using a first-of-the-year date has emotional appeal.

The GST tax is not directly mentioned in President-Elect Trump’s tax proposal, but Congressman Paul Ryan’s “A Better Way” plan expressly calls for repeal of the GST tax. As well, when the House last voted to repeal the estate tax, repeal of the GST tax was included in the measure. Thus, we fully expect that any tax reform laws will include a GST tax repeal.

It is important to realize that estate tax reform will likely also include repeal of carry-over basis at death for most assets. President-Elect Trump proposes, “capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms.” This indicates that death would be a “recognition event,” causing tax on capital gains upon death. The application of a $10 million exemption lacks clarity at point, but could be per person, or per married couple.

As always, we welcome you to schedule a free consultation at Kling Law Offices to explore your estate planning options as these new laws and opportunities are unveiled.