President Trump’s Proposed Policy on Estate Tax 

According to the “Make America Great Again” website, https://www.donaldjtrump.com/policies/tax-plan/, “[t]he proposed Trump tax plan will repeal the death tax, but capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms. To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or the decedent’s relatives will be disallowed.”  Shall we unpack that?

Under current law, for 2017, the estate and gift tax exemption is $5.49 million per individual, up from $5.45 million in 2016. That means an individual can leave $5.49 million to heirs and pay no federal estate or gift tax. Surviving spouses can carry over each other’s unused exemptions, allowing a couple to shield just shy of $11 million ($10.98 million) from federal estate and gift taxes. For taxable estates, the rate is 40%. Assets get a “stepped up basis” that allows capital gains to escape taxation if passed to heirs. If you bought stock for $100,000 and it’s worth $1 million when you die, the $900,000 appreciation escapes capital gains taxation—but could be subject to the estate tax depending on the value of your estate.

So, President Trump is proposing to repeal the estate tax but disallow the step-up in basis such that when the inheritor sells the asset, it will be subject to tax on the gain. But, apparently, only above a certain threshold. Only when the capital gains exceed $10 million dollars would the gains would be subject to, at the most, a 20% tax bite (as opposed to 40%).

This doesn’t entirely make sense in that there would have to be some mechanism to track when the assets were actually sold and for how much. Assets are sometimes transferred to heirs, but not sold until sometime later in the future. Only upon a sale in the future would you be able to figure out if the gain was over the $10 million-dollar threshold.  So for now, it’s best not to think about it too hard. The devil, as we know, is always in the details and things will hopefully become more clear as we get further into the president’s term.  In the meantime, we plan for flexibility here at GWEB so we can be as prepared as possible for whatever legislation comes down the pike and we will keep an eye on things to let you know if changes in your documents or estate plan will need to be made.

By | 2017-02-13T13:10:35+00:00 February 7th, 2017|Probate & Trust Administration|0 Comments

Leave A Comment