How Will the Election Affect Estate and Tax Planning?
It is no surprise that the recent presidential election was one, if not the, biggest moment for the United States this year. No matter which side you may fall on, the tide has turned and we will be a part of a new administration that will lead our country forward. Although some have proposed we move off to Canada, let’s reevaluate our current situation before we leap to conclusions. The purpose of this blog is to address your concerns about how the election will affect the world of estate and tax planning.
Let’s start out with what we know. The Republican Party will control the executive branch for 4 years, and the GOP will have a sizeable advantage in Congress for a few years at least. Republicans made numerous campaign promises to move quickly in enacting policy. For President-Elect Donald J. Trump, he campaigned on reforming the tax code, rehabilitating our nation’s infrastructure, and repealing the Affordable Care Act (“Obamacare”), among other priorities.
For taxes, we could see some changes – both with income tax and estate tax. Trump has advocated switching from 7 income tax brackets to 3 brackets, and he also wants to lower the business tax rate from about 35% to 15%. Additionally, Trump has stated that he wants to keep the capital gains tax at the 20% rate while possibly repealing the Medicare surtax of 3.8% when he attempts to roll back Obamacare.
Now, what about Trump’s so-called “death tax” plans?
Trump has stated that he wants to eliminate the “death tax” altogether. Good news at first glance, but wait, there’s more. Trump has also stated that he wants to switch the estate tax to a death capital gains tax. Although the particulars are muddy, it is assumed that capital gains in excess of $10 million will be taxed at a 20% rate upon one’s passing. Whether the $10 million applies to the amount of actual gain or whether the $10 million refers to the entire value of the asset (before and after gain), it is still unclear at this moment in time.
The GOP made similar proposals on tax reform. Particularly, the GOP wants to switch the income tax brackets from 7 brackets to 3, and they wish to lower the corporate tax rate to 20%. The GOP also wishes to eliminate corporate tax credits except those credits used for research and development (R&D). Additionally, the Republicans want to provide an indefinite carryover for a corporation’s net operating losses but disallow carrybacks.
So, does that mean we can throw away our complex tax planning trusts and look ahead to a better and brighter future?
Not so fast! January 20th is still a few days away. Even though numerous campaign promises have been made, it is important to remember the old adage – political promises can be broken just as fast as they are made. However, it is still important to look at the facts.
Although it may be a surprise to some, both President-Elect Trump and the Republican Congress have similar priorities. Even though some procedural rules in place with the Senate could slow down the Republicans’ efforts to reform the tax code, it is apparent that the GOP is going to move forward. The Grand Ole Party expects that their laws will pass both chambers and that these laws will inevitably be signed by the future President Trump.
However, with all of that in mind, it is important to realize that the current estate tax does not apply to about 99% of the U.S. population. For an individual’s estate to be taxed at death, he or she must own real and personal property that exceeds $5,450,000.00 million (or, $10,900,000.00 for married couples). Thus, if Trump and the Republican party repeal the estate tax, then this move benefits about 1% of Americans.
In summary, there is likelihood for federal tax changes given the political realm after the 2016 election. However, those proposed changes – at least to estate tax – will not affect a huge number of American citizens. Even though the election is over, it is important to stay in tune with what happens after.
At NC Planning, we will continue to follow any changes and updates with the tax laws. We will keep a watchful eye and continue our distinguished practice of planning estates for our clients. We take pride in the fact that the law is in a constant flux because it reminds us that we ourselves must always adapt and better ourselves. Change is challenging because it causes us to think critically about our system, our perceptions, our society and, ultimately, ourselves. The 2016 election has now come and gone, but we, the citizens, keep everything moving forward. Let’s not rush off to Canada just yet.