Mar 09, 2017

The future of estate planning under a Trump administration

Nothing in life is certain but death---not even estate taxes

With Republican President Trump in the White House and a Republican majority in Congress, the stars are aligned to fast-track Republican-based agendas. High on the priority list is the repeal of the federal estate tax[1]. According to his October 2016, ‘First 100 Days’ speech, President Trump even puts the estate tax repeal at the top of his congressional docket. However, the new administration has yet to articulate the details of the proposed repeal and, although the circumstances are favorable, Congress is a fickle friend, leaving the future of such repeal impossible to predict. Some Republicans desire an immediate repeal of the estate tax while others opt for a gradual phase-out.

Thinking long-term, the permanency of such repeal during future presidential terms remains unclear. Gift and generation-skipping taxes could be eliminated as well or, more likely, retained to offset loss of federal income. The provision that may have the biggest impact on taxpayers is a possible rescission of the adjustment at death for the decedent’s capital assets (commonly known as a step-up in basis[2]), subjecting beneficiaries to pay taxes on such appreciated assets based on the decedent’s cost basis. Additionally, state inheritance taxes will not automatically disappear with the federal estate tax repeal. Illinois, for example, has a $4 million lifetime estate tax exemption that requires planning regardless of federal mandate. These uncertainties beg the following questions:

(1) How do I prepare for the possibility of tax reforms; and

(2)  Would such reform negate my current estate plan?

In response to the first concern, until we know whether the repeal will occur and how broad the repeal will reach, you should continue to implement your estate planning strategies. A properly drafted estate plan will provide flexibility to maximize tax savings at the time of your death, regardless of who is in office or the tax haven at that time. However, those who are ill or elderly should consider updating areas of their estate plan to incorporate further flexibility in the event that such individual lacks capacity to make changes in the future.

To address the second question, estate planning encompasses far more than tax avoidance or reduction. Primary objectives and non-tax benefits in estate planning include:

  • Protecting assets from third-party claims, such as elder abuse, divorce and malpractice claims;
  • Avoiding probate delays and costs, and court involvement;
  • Providing your family with privacy (probate is part of the public record);
  • Enabling a smooth transition should you suffer incapacity and avoidance of the conservatorship or guardianship process in court;
  • Appointing a guardian for minor children should you and your spouse die prematurely;
  • Creating a plan of distribution upon death so that your family wealth remains in your bloodline and is allocated according to your wishes in a controlled manner;
  • Articulating your desires regarding organ donation, end of life treatment and disposition of remains; and
  • Organizing a business succession plan to ensure your professional legacy lives on.

Perhaps the most encouraging reaction to the possible repeal of estate tax is the opportunity to review your estate plan to revise objectives and ensure achievement of income tax savings and estate planning goals. In particular, revisiting long-term goals for family limited partnership and closely held businesses will ensure that your estate plan aligns with these current business objectives. Don’t let the hype of presidential promises and the possibility of an estate tax repeal fool you—estate planning is still alive and well and like death, should be an absolute.

Discover how these changes may impact your individual estate plan. Feel free to contact the attorneys at Chuhak & Tecson, P.C. to discuss. Staying in contact with your attorney increases your chances of being prepared for whatever unfolds in the upcoming term.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client Alert authored by: Christina M. Mermigas, Associate

This alert originally appeared in the Spring 2017 Corporate Focus newsletter.

[1] Currently, in 2017, the federal estate tax exemption is $5.49 million per person ($10.98 million for married couples). Putting this issue into perspective, the federal estate tax affects a minuscule portion of the general population, typically only the very wealthy. Of the millions of people who die each year, only about one in every 500 or 600 pay some amount of federal estate tax.

[2] Currently, assets get a step-up in basis to the current fair market value upon a person’s death when transferred to beneficiaries. In lieu of the estate tax, the plan may assess a tax on unrealized appreciation of capital assets that exceed $10 million as of the date of death. However, the plan is ambiguous as to whether the tax will be imposed upon the decedent’s date of death or upon later sale of the appreciated property. Either way, such proposal would require taxpayers to keep stringent records to determine the decedent’s original cost basis in capital assets.