A
hot topic resulting from the 2016 election is the potential repeal of the
estate tax. Donald Trump spoke of such repeal numerous times throughout his
campaign and with a Republican Congress by his side; it may be included in an
expected tax change package early in his presidency.
This
may lead to confusion since individuals will be unsure how it impacts their planning.
Individuals with existing estate plans should not rush to make changes assuming
the repeal of the estate tax until more information is known. However, due to
potential changes in Chapter 14 of the IRS Code that was introduced this
quarter, individuals contemplating GRATs or transfer transactions may wish to
move ahead to lock in discounts that may be terminated.
For
individuals who have yet to set up an estate plan, it is advisable to establish
an estate plan as soon as possible, for many reasons some of which are
discussed below.
It
is important to understand that repeal of the estate tax does not automatically
mean that individuals will die without paying tax. It is possible that the
estate tax will be replaced by a different tax. There has been speculation that
such other measures could include one or more of the following: a similar
estate tax system with an increased exemption; a capital gains tax on death; or
the beneficiary receiving a carryover basis in inherited property instead of a
step-up basis.
In
addition to tax planning, an effective estate plan also provides asset
protection. Even without an estate tax in place, it is still important for
assets to be held in trust for asset protection purposes. By having such assets
in trust for a beneficiary, it protects such individuals from everyday
creditors and from divorcing spouses. Additionally, it is the most effective
way to ensure that your assets are passed on to the intended beneficiaries.
Finally,
it is entirely possible that an administration in the future will return to the
current estate tax system. As more details emerge of the new administration’s
plan, we recommend that you contact our office to ensure that your current plan
is still effective and meets your goals.
