President Donald J. Trump recently reaffirmed his commitment to repealing the estate tax but provided little additional insight into how such a repeal might take form. This leaves financial planners in an uncertain position. Currently, the federal estate tax is 40% for individuals passing on an estate valued at over $5.49 million. If the estate tax were successfully done away with, this entire government bill would disappear for individuals with estates exceeding the threshold. While some would certainly celebrate, the repeal of the estate tax would potentially cost the federal government over $17 billion per year. In order to recoup these potential losses, President Trump has proffered the idea of a Canadian-style tax system that assesses a capital gains tax in lieu of the estate tax. The system currently in place allows beneficiaries to avoid capital gains for certain assets. While still being taxed under this Canadian-esque system, the effective tax rate drops from the current 40% to around 20%. But, change remains uncertain.
Republicans need Democratic support to attain 60 votes in the Senate; this is unlikely. In order to circumvent the Democrats, Republicans would be forced to pass tax legislation through reconciliation. Even with this, current rules require deficit-increasing measures passed under this method to “sunset” after a decade. If this were to occur, the best estate planning would have to consider tax ramifications at year 11. While somewhat macabre, the “best plan is to die in those 10 years.”
See Greg Iacurci, Trump Tax Proposal Leaves Advisers in the Dark on Estate Tax Repeal, Investment News, April 27, 2017.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
