WOULD A FEDERAL ESTATE TAX EXIST UNDER PRESIDENT-ELECT TRUMP?
The election of Donald J. Trump to the Presidency surprised voters and pundits alike and continues to reverberate in the public square. When considering what comes next in Washington, President-Elect Trump’s lack of policymaking experience makes it extraordinarily difficult for experts and advisors to predict the legislative consequences of the 2016 election, including the potential for changes in the areas of estate and tax planning. Nonetheless, we feel it is appropriate at this time to share the following with our clients and colleagues.
President-Elect Trump’s campaign advocated outright repeal of the federal estate tax. This position is consistent with prior legislative efforts by Republicans in Congress to eliminate the estate tax. Republicans now control both houses of Congress and the Presidency. The political process is unpredictable even in “ordinary” times, as procedural safeguards, shifting priorities, and political horse trading often complicate and delay even items of apparent consensus. Nonetheless, it appears that repeal of the estate tax regime is now a possibility, although the timeframe and end result of any such effort are unknown at this time.
What would this mean, and how would it play out? It is difficult to say at this time, and President-Elect Trump’s campaign proposals on these issues lack specificity. However, it is likely that any repeal of the estate tax would deal also with the federal gift tax and generation skipping transfer tax. Also, under current law, the income tax basis of assets owned by a decedent at death are “stepped-up” to their fair market value as of the date of death. Many past proposals for elimination of the estate tax have suggested a simultaneous end to this “step-up in basis” rule. Such a change could have profound consequences for millions of families where appreciated assets pass between generations, as the elimination of a “step-up” in basis may result in significant capital gains taxes when appreciated assets are eventually sold.
Repeal of the estate tax would represent a sea change in estate planning for many individuals and families. Elimination of the step-up in basis at death has the potential for perhaps even more far-reaching consequences, as it will affect all taxpayers with appreciated assets, regardless of their potential exposure to estate tax.
Timoney Knox will be closely monitoring events on Capitol Hill and will communicate with clients if and when changes occur. For individuals considering significant estate or tax planning for 2016 and 2017, we recommend speaking with a Timoney Knox attorney. (November 15, 2016)