February 2017

Trump Taxes - Part 1

Taxes in the Crystal Ball

Donald Trump and House Republicans have promised to make a revamped tax code a top priority in the first 100 days of the new administration. Speculation currently is that a good deal of the future legislation will be a blend of Trump's tax plan and the House Republican's A Better Way plan. Here's a look at the estate and gift tax provisions, with corporate taxes to follow in an upcoming newsletter:

Estates, Gifts & Trusts -

The possibility of estate tax repeal in a larger tax reform package has become more likely in 2017. Controversial estate tax regulations on valuation discounts also are less likely to be moved forward, at least any time soon.

What actions should you take now?

Here are some thoughts:

Since there will still likely be a tax on assets at death in one form or another, strategies for reducing the size of the taxable estate continue to be relevant and important.

Estate Plans that contemplate only an environment with a federal estate tax should be reviewed and quite possibly amended. For clients with a net worth exceeding a threshold that we've seen come up many times through the past couple of decades, in the range of $3.5 Million, consideration should be given to taking advantage of any loosening of the estate tax rules, particularly if the complementary lifetime gift tax is repealed or has the limit raised.

There are some strategies that can be considered now to reduce the potential for estate taxes on your estate, whether because repeal doesn't happen or because estate taxes are repealed, but then reinstated under another administration. Spousal Limited Access Trusts (SLATs) allow donors to use their federal estate tax exemption-capturing the future appreciation inside the SLAT-while still allowing access to the assets by the donor's spouse. If the federal estate tax is eliminated and we find that the assets otherwise would have received a tax-free step-up in basis at death, the assets can be distributed back out to the donor's spouse. SLATs also can be used to avoid state estate or inheritance tax on the transferred assets in states that have an estate or inheritance tax but not a gift tax, while still continuing to ensure that, if needed, the assets will be available to the donor's spouse in the future.

With assets that aren't appreciated, there appears little risk in continuing lifetime gifting strategies, including gifts of less than the gift tax annual exclusion (currently $14,000). Even though the assets might ultimately be transferred at the donor's death without incurring a federal estate tax if there is a complete repeal, it may be that the federal estate tax is later reinstated.

As you can see, there is a real chance for lower taxes in the near future. We're here to help you make the most of the possibilities.