With the election of Donald Trump as President, many income, estate, and gift tax issues are in a state of uncertainty. President-Elect Trump has mentioned eliminating the Estate Tax, but it’s unclear if he will make that a priority, or if Congress is interested in such a change.
There are a number of combinations and possibilities of what could happen with estate and gift taxes, so it is too early to speculate on what Congress and President-Elect Trump will do, but some of the possible options are:
- Repeal of the estate, gift, and generation-skipping transfer taxes;
- Repeal of the estate, gift, and generation-skipping transfer taxes phased out over a certain amount of years;
- Repeal of the estate tax but keeping the gift tax so taxpayers cannot easily shift income taxes to those in lower brackets;
- Any of the foregoing with a carryover basis on death instead of a step-up basis; or
- Any of the foregoing with a capital gains tax on death.
Many commentators with an interest in estate planning are suggesting a “wait and see” approach. In most cases, we disagree.
For wealthy clients who have a potentially taxable estate, whether to stay the course on current estate planning can be a complicated question. What should they do? In short, there is no reason to pump the brakes on planning.
First of all, there is always a chance the estate tax will come back if it is repealed, and it could come back with reduced exemption amounts. If the estate, gift, and generation-skipping transfer tax are repealed, the $5.5 million exemptions could be lost. There is a real opportunity to do some aggressive planning before Congress acts.
Second, there is very little risk to continuing any planning. Maintaining flexibility is crucial due to the uncertainties of how the tax laws will change. Transferring business interests, fractional property interests, and hard-to-value assets with appropriate valuation discounts to grantor trusts will continue to be a popular technique. With these flexible trusts, a grantor can swap assets out of a trust for assets of equal value if there is a future desire to get the low-basis appreciated asset back in the grantor’s estate for income tax purposes.
Finally, there are non-tax reasons for estate planning. For clients who are focused on protecting their assets from creditors, it would also be prudent to continue the current course of sheltering those assets in irrevocable trusts.
For more information regarding this topic or any other estate planning topic please visit our website at www.hoffmanestatelaw.com or contact us at 404-255-7400. You can also email us at firstname.lastname@example.org.