Contributed by: James Smiertka
The New Year always brings changes, but this year may be particularly notable. We have a new U.S. President & our Congress is ruled by a Republican majority. This surely brings a new direction for the country and also the prospect of policy and regulatory changes.
As we know, President Trump made tax reform a key issue during his campaign, and he has proposed wide-ranging changes to the U.S. tax system. Additionally, with the GOP with majority control of the House and the Senate, there is a better chance for an overhaul of the federal tax system than in the past. Changes will most likely not be quickly completed, and it is likely that any tax reform will not take place until late 2017 or early 2018.
Here are some of the potential changes:
- Trump’s plan seeks to repeal the current estate tax as well as the alternative minimum tax (AMT) and generation-skipping transfer tax (GSTT)
- Total repeal is unlikely
- $10 Million exemption (per couple)
- Assets above this amount would be subject to capital gains tax
- Likely change to the asset basis step-up for heirs
- Date of death value rules likely preserved for heirs of smaller estates
- Limited basis step-up for heirs inheriting from larger estates
- There is also the potential for state estate taxes to disappear as they are based on the federal estate tax system
- Will most likely stick around in some form
- Prevents income shifting from donors in high tax brackets to the donated in lower tax brackets
- If the estate tax is repealed, we could be looking at a change to the lifetime gift tax exemption in the neighborhood of around $1 Million or higher (lifetime), with the annual gift tax exclusion preserved (currently $14,000/year)
There are a wide range of possible combinations of estate & gift tax reform, and potential tax planning opportunities depending on the details of that reform. Here are some potential scenarios, per Michael Kitces:
While there are many potential planning scenarios for both individuals and businesses, nothing is certain. Only very broad strokes have been “painted” thus far. Regardless, Center for Financial Planning, Inc. is always staying up to date with the most recent changes. Make sure to speak with your financial advisor if you have questions on any of these topics.
Also, make sure to check out our previous blog on the new administration’s potential impact to marginal tax brackets, standard deductions, and capital gains tax.
James Smiertka is a Client Service Associate at Center for Financial Planning, Inc.®
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of James Smiertka and not necessarily those of Raymond James. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.