As we attempt to anticipate some of the changes that may come into effect as President-Elect Donald Trump takes office, the implications of his proposed tax plan may mean that it is time to revisit your estate plan to ensure that you are making the most of various tax guidelines. Under the proposed plan, the new system would eliminate many estate taxes and gift taxes altogether, as well as the transfer tax. In general terms, if these changes do take effect, they will shift the focus of estate planning from minimizing tax burdens on transfers to minimizing capital gain taxation.
Currently, the vast majority of estate plans throughout the country are built around the idea of reducing loss of estate value through transfer taxes. However, if these proposed changes are in fact codified into law, then hundreds of thousands of estate plans will need to be re-tooled to account for the sudden absence of many of those taxes they sought to minimize.
As the matter stands, we are each individually allowed an estate tax exemption of about $5 million, with anything exceeding that threshold being taxed at about 40 percent. Under the proposed plan, this taxation would be replaced by capital gains taxation of around 20 percent. This change will require very specific planning on the part of many estate planners throughout the coming years. Under this proposed system, assets transferring from the decedent to beneficiaries will now incur capital gains for their increase in value over their value when they were acquired by the decedent. While this can lead to great increases in transference opportunities, those will only come with very specific planning.
It is easy to feel overwhelmed by the news that your entire estate plan may need to be reworked to accommodate an entirely new tax structure. Please understand that you are absolutely not alone. While none of these changes have taken effect yet, it may be wise to have a conversation with an experienced attorney about how your estate plan may need to be modified in the coming months to ensure that your estate is prepared to make the most of the new system.
Source: Daily Business Review, “Trump Plan for Elimination of Estate Tax Changes Focus of Estate Planning,” Eugene Pollingue, Dec. 22, 2016