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.