Broker Check

Is Estate Planning on Life Support?

| April 27, 2017

One of the key tax initiatives rumored to be part of the new administration’s tax overhaul is a repeal of the federal estate tax.  Even if this were to take place, it seems likely that estate planning will remain an integral part in comprehensive financial planning now and in the future.  Here’s why:

The first consideration is probably the most obvious: the timing of a complete repeal of the federal estate tax is uncertain.  There are several other high-priority items like health care and income tax reform that we believe will push action on this out months and maybe years.

The second consideration is the impermanence of the repeal.  Even if Republicans procedurally maneuver around a Democratic filibuster to remove the estate tax, the repeal may be limited to only 10 years.  Is it possible that in 10 years a different administration and majority in Congress will overturn a repeal in the future?  Of course. This fact just reinforces the need for fluid and nimble planning in this area.

State taxes present a whole different situation.  While many states either do not have estate tax or simply follow the federal estate tax figures, there are some states, like Massachusetts, that have independently determined their own estate tax schedule and exemption (currently $1,000,000 in MA, for example).  When determining the state you may retire to or if you own property in a state with its own estate tax, this will continue to be an area where planning can have a major impact.

Also, a repeal of the federal estate tax will likely not be accompanied by a repeal of the federal gift tax.  There is a reason that the gift and estate taxes are tied together, and a repeal of gift taxes may allow for individuals to shift ownership of assets in ways that could produce unintended loopholes.  For example, in a “post gift tax” world, a parent could gift assets to a child to sell a highly appreciated asset and realize a gain at the child’s lower tax rate, then promptly turn around and have the asset transferred back to the parent.  It is also not clear what impact there will be on the existing Generation-Skipping Transfer Tax (GST).

Finally, whether there are federal estate taxes to deal with or not, there continue to be needs for basic estate documents like wills, durable powers of attorney, strategic beneficiary designations and trusts and other vehicles in order to sustain the distributed wealth or to efficiently plan for philanthropic endeavors. 

Tax changes of the magnitude promised by President Trump during the election are a complicated affair to say the least.  It remains to be seen how this will all play out, but it seems unlikely that the need for thoughtful estate planning will go away any time soon.

Reference: Financial Advisor Magazine article

Content in this material is for general information only and not intended to provide specific tax or legal advice or recommendations for any individual.