Throughout his presidential campaign, President-Elect Donald J. Trump pledged to repeal the federal estate and gift taxes or replace them with a capital gains tax at death. After his victory, it is important that estate planning attorneys discuss with their clients the possible repeal of estate and gift taxes.
Under current law, any individual whose estate exceeds the estate and gift exemption of $5.45 million ($10.9 million for couples) is subject to taxation at a rate of 40 percent. For gift tax purposes, if gifts of more than $14,000 per person are made in a single year, there is a gift tax filing, however, there may be no gift tax owed.
With Republicans controlling the U.S. House of Representatives, Senate and White House after the 2016 election, repeal of these taxes is possible. However, it is worth noting that Republicans do not have the filibuster-proof supermajority of 60 seats in the Senate—something that could delay the process.
Possible estate planning changes on the way
There are no certainties regarding what the new Congress will do with respect to federal gift and estate taxes. Most estate planning lawyers agree the following are a few of the potential changes that could take effect in the coming months:
- An immediate, permanent repeal of gift, estate, and generation-skipping transfer (GST) taxes.
- A permanent repeal of all transfer taxes that would take effect over a certain phase-out period (such as 10 years), as happened in 2001. This would pose the risk that elected officials would again change the tax during the phase-out, so it’s unclear if Mr. Trump, as president, would approve of this arrangement.
- A repeal of the estate tax, but a retention of the gift tax.
- A repeal of the estate tax—regardless of gift tax status—and a new capital gains tax to go into effect upon one’s death.
The timing of potential changes is also completely up in the air at this point. It’s unclear whether President-Elect Trump and the Republicans in Congress would make repealing estate taxes a priority. Mr. Trump’s 100-day plan does include the potential for eliminating these taxes, but the media has paid much more attention to other actions likely to take a higher priority, such as the president-elect’s plan to repeal the Patient Protection and Affordable Care Act.
To that end, you may be wondering about the actions you should take as it pertains to your estate plan. Right now, most attorneys would agree that you should wait until President Trump takes office and see what unfolds over the first four to six months of 2017. While there may be some changes on the way, it’s also far from a certainty that a repeal or reduction of estate and gift taxes are on the horizon at all.