New Administration May Mean Major Estate Tax Changes

The estate tax (also known as the “death tax”) may be on the proverbial chopping block with President-elect Donald Trump ascending to Commander-in-Chief, along with a Republican-controlled Congress. Most, if not all, Republicans oppose the estate tax. President-elect Trump’s tax plan expressly calls for an outright repeal of the tax and imposing a capital gains tax on assets left to heirs above $10 million, according to

The estate tax is generally not an issue for most people due to the sizable exemptions afforded under the tax code. However, people often make the mistake that estate planning is the same thing as estate tax planning.  Rather, estate tax planning is one component of estate planning but there are many other issues your family must deal with on death as it is a major life event and you still will need to deal with local governments, financial institutions and family dynamics.

Here is a video discussing the estate tax debate:

Under current law, the estate and gift tax exemption is $5.49 million per individual for 2017, which is a slight increase from $5.45 million in 2016. That means you can leave $5.49 million to your heirs and pay no federal estate or gift tax. If you have a surviving spouse, they can carry over any unused portion of your exemptions which means a legally married couple can effectively protect $10.98 million from federal estate and gift taxes.

As you can see, the estate tax generally affects estates valued in the tens of millions. For example, in tax year 2015, nearly 5,000 estates paid $17 billion in estate taxes. More than a third of that total was raised from just 266 estates valued at $50 million or more (bringing in $7.4 billion in tax revenue).

If your estate exceeds the exempt amount, the rate is an onerous 40 percent. Fortunately, estate assets get a stepped up basis allowing capital gains to escape taxation if it is passed to heirs. So, for example, if you bought Apple stock for $50,000 and it’s worth $500,000 when you die, the $450,000 appreciation escapes the capital gains tax.

The “Compromise” Estate Tax Plan

As mentioned earlier, President-elect Trump’s compromise plan to reform estate taxation would involve repealing the estate tax and replacing it with effectively a capital gains tax at death. President-elect Trump would supplant the estate tax with a tax on capital gains held until death and valued over $10 million (though small businesses and family farms would be exempt). To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives would be prohibited, according to the aforementioned Forbes article.

Do Not Plan for a Standalone Estate Tax Repeal Bill

Considering the difficulty of attaining the necessary 60 votes in the U.S. Senate, the chance of anything happening on the federal estate tax will likely be part of an overall tax reform bill, according to Charles “Skip” Fox, who works for McGuireWoods in Charlottesville, Va. Though, the Republican majority in the senate could try to include an estate tax repeal in an overall tax reform bill and pass it through budget reconciliation with only 51 votes.

Have a Professional Review Your Estate Plan to Avoid Unnecessary Taxation

As you can see, taxes are a major issue when it comes to estate planning but remember it is not the only issue. You do not want your estate subjected to an unnecessary, burdensome tax if you are able to avoid it with effective estate planning strategies. This is why you should contact an experienced estate planning attorney in your area today. If you reside in McLean or Ashburn, Virginia, consider attending one of our free informational sessions to learn the truth about estate planning (registration required).