Donald Trump’s Death Tax Proposal – A Non-Partisan View
As this time, it is difficult to determine what the specific provisions of President-Elect Donald J. Trump’s tax proposals will be; however, it is important to highlight the types of planning that are not likely to be affected, and therefore could, and should, continue.
First, in 2016, federal estate and gift taxes became an issue for estates (including life insurance that isn’t in a Crummey trust) over $5.45 million per individual or $10.9 million per couple. For those under those amounts, there isn’t a need to worry about federal estate and gift taxes (except insofar as gift tax reporting may be needed for those gifts over $14,000 to an individual).
Second, basic planning for Wills, Trusts, Medical Directives, and Powers of Attorney still need to be done, since the probate process after death isn’t going away. There will still need to be planning for minor children, businesses, out of state property ownership, etc. Planning will still need to be done for beneficiary designations, retirement plans, and specialized trusts because IRAs/401Ks will continue to be needed for non-spouse beneficiary asset protection purposes, as well as to protect the interest of minors.
Third, there will still be a need for protecting assets, income tax planning, and proper reporting (especially for foreign assets). Therefore, a significant amount of planning will not change regardless of the administration.
Estate Taxes & President-Elect Trump
According to the donaldjtrump.com website (as of 11/15/16), his policy as to the “death tax” is as follows; “The Trump 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.” So, for the vast majority of estates, those below $10 million, there will still be the same step up in basis as before.
As an explanation, step up in basis currently works as follows. Let’s say the decedent had bought a rental home for $10 and it is now worth $100 at the time of decedent’s death. If the decedent sold it during the decedent’s life, there would have been $90 subject to the capital gains tax. Under current law, at death the basis would be stepped up for the beneficiaries or heirs of the decedent’s estate, so that if they sold it for $100, there would be no capital gains tax. Note that this capital gains tax is separate from the estate tax discussed above, and so the purpose of the step up is to prevent double taxation (i.e., both estate and capital gains tax). Trump’s plan lists a maximum capital gains tax rate of 20%.