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Thanks, Congress. Wealthy investors hold off on estate tax planning

What Does This Mean For Estate Tax Planning For the Remainder of the Year?

Although President Trump has taken to Twitter to implore congressional Republicans to continue the “Repeal and Replace” efforts, the general consensus seems to be that such efforts would be futile, and that Congress is moving on towards considering tax reform.  However, as CNBC reports, the two issues are inherently linked, as the original plan to repeal the Affordable Care Act (“Obamacare”) included a variety of tax benefits to wealthy Americans.  With the attempts at repealing Obamacare stalled, substantial uncertainty exists regarding whether tax reform will happen at all, and if so what it will look like.  And unfortunately, uncertainty is usually the enemy of estate tax planning.

What changes might occur?

Perhaps the most significant item on President Trump’s tax reform agenda is his proposed repeal of the estate tax, or “death tax.”  Currently the estates of Americans who die with more than $5.49 million (or $10.98 million for married couples) are taxed at 40% after the estate owner’s death.  President Trump is pushing Republicans to eliminate that tax.

However, there is significant resistance to President Trump’s plan, and no guarantee he will be able to move his agenda forward.  For Americans whose estates could potentially be subject to the estate tax, this uncertainty is untenable.  If you were to pass on this year, will you be able to provide the fruits of your labors to your loved ones, or will Uncle Sam take half of them first?  In these tentative times, careful planning is critical to ensure your estate is distributed appropriately.

How can I protect my estate?

In the past, the basic principle of estate planning for large estates has been simple: the government only taxes estates larger than a certain value, so make sure your estate is worth less than that value.  Typical estate reduction techniques include gifting assets while you are alive to those who would inherit them after you’ve passed, or placing assets in a trust account to benefit them after you’re gone.  Although these procedures may still incur some taxation, it is generally at a lower level than the estate tax.

However, with the estate tax potentially on the chopping block, such maneuvers may prove to be unnecessary.  If Congress does indeed repeal the estate tax, then the owners of large estates might be best served keeping firm control over all of their assets rather than give them away to trusts or allowing them to be taxed as they pass to family or loved ones.

Until there is clarity from Washington regarding the future of the estate tax, wealthy Americans need to be especially vigilant in making estate plans.  The best strategy would be to have a plan in place for the current estate tax, a Plan B in case the tax is repealed, and probably a Plan C in case Congress ends up somewhere in the middle.  Our attorneys have years of experience planning for and protecting both large and small estates, so if you have concerns about your own estate please contact us today to schedule a consultation!

Posted in: Tax Planning

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