How Will Trump’s Presidency Affect Estate Planning?!

With the new administration underway, there have been lots of questions around how changes to the IRS code under Trump will impact American’s who may face estate taxes, gift planning, and capital gains upon transfer of property.

What's in the future for estate taxes-Estate Tax Repeal

If estate taxes are repealed, it will most likely affect about 0.2% of the U.S. population who currently exceed the exemption in place now. However, any significant change related to the estate tax is most likely to tied to how capital gains are taxed. Approximately 5,000 estate tax returns were filed nationally in 2015. On the other hand, we all pay income tax, so the potential change to capital gains taxation is likely to have a wider ranging effect.

Gift Tax Repeal

Although possible, it is less likely that this tax will be repealed. It is a way to ensure income tax is paid. Without a gift tax, taxpayers may more easily shift income to family members or others with lower income tax rates. For example, a parent might gift an asset to a child. The child then sells the asset at a lower rate, and then gifts the sale proceeds back to the parent.

Capital Gains Changes

Capital assets traditionally receive a step-up in income tax basis at death. As a result, a sale of that asset upon a parent’s death results in no capital gains tax. Without the estate tax system, the parent’s original cost or other basis would be used to determine the capital gain subject to tax.

An alternative that is being considered by Trump’s administration is a transfer at death being a trigger to a capital gains tax even if the property is not sold. This could be a problem for maintaining family farms, real property and even family wealth because the cash needed to pay the tax would not be available.

Overall, a repeal of the estate tax system opens many opportunities to better plan for a family’s fears, dreams, hopes, aspirations and ultimate legacy. Planning could be potentially a lot simpler and less focused on taxes.