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The Big Questions About Trump’s Estate Tax Plans

President-elect Trump has promised a tax overhaul within the first 100 days of his presidency.  As wealth managers/planners, it’s important to understand the proposed changes and how they could impact our clients’ lives.  To that end, below are some questions that will help whiten our hair even more…at least until we have some clarity.  It’s very difficult to plan if there are no concrete conclusions.

  1. Will Repeal Occur?

The June House GOP agenda called for the repeal which Trump mimicked in his campaign.  The problem is, the Senate needs 60 votes to ratify and they only control 52 seats.  Therefore, this will unlikely happen.  However, there is a procedural backdoor called reconciliation that the Republicans can use to get the repeal effected with a simple majority…52.  But, to use reconciliation, the Republicans would need a budget resolution first.  Furthermore, the reconciliation cannot expand the federal deficit outside the 10-year budget window.  This was like Bush’s EGTRRA legislation.

 

  1. Will There Be a Gift Tax?

Both Trump and the GOP’s agenda were silent on the fate of the gift tax.  This is surprising as both the estate tax and gift tax are commonly discussed in tandem.  Because the gift tax tends to protect the states’ income tax systems, it’s unlikely this would be eliminated.  But, it’s possible.

 

  1. Capital Gains at Death?

Trump campaigned that estate tax would be replaced by capital gains tax for assets held until death and valued at more than $10 million.  However, Trump didn’t say whether the $10 million was per individual or for a couple.  The House’s plan didn’t include such a provision.  An additional murky point is whether this capital gains tax would be triggered at death or upon disposal of the assets.

 

  1. Will Basis Step-Up Disappear?

If we move to a capital gains system, how would the income tax benefit of basis step-up apply?  It typically works like this: at death, the assets owned by the decedent pass to their heirs at current market values thus, avoiding any capital gains tax if sold immediately upon receipt.  With the proposed capital gains tax regime, how will this apply?

 

  1. Does the Charity ‘Abuse’ Provision Stick?

In the Trump proposal, it states “To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed.”  This doesn’t seem to make much sense.  Perhaps the thought here is that if the amount is greater than $10 million that the gain would be taxed if it goes into a family foundation.


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