By Randall A. Denha, J.D., LL.M.*
Donald Trump is now the President, and both chambers of Congress are under Republican control. As such, we appear to be poised for potentially substantial changes in the estate tax, gift tax, generation-skipping transfer tax, and income tax laws. However, as with all other aspects of political life in America today, it is impossible to predict at this time what ultimate changes will materialize. The only clear thing is the lack of clarity.
Is the Estate Tax History?
First, there is the perpetual Republican promise, supported by the President, of “repealing” the estate tax. Last time the estate tax was “repealed” (in 2001), it really meant eight years of gradually increased exemptions and gradually decreased rates, followed by one year of repeal (2010), followed by the return of the estate tax with even greater exemptions and lower rates, which is where we are today. Will this happen again? Will the estate tax just disappear retroactive to 1/1/17 or perhaps on 1/1/18? Will deficit hawks decide that even the relatively tiny revenue generated by the estate tax is worth keeping to avoid a political fight with Democrats?
Is there a Free Lunch?
Probably not. Rumors abound of substituting a Canadian-style system of treating all assets as sold at death – a forced capital gain at death. What would the exemption be ($10,000,000 is the figure being discussed, but is that $10,000,000 of gain, or the gain on $10,000,000 of asset value)? Would specific assets such as the elusive “Family Business” be exempt? If some version of the Canadian system isn’t adopted, would Congress get rid of the “stepped-up” income tax basis as a trade-off for no estate tax, with all the attendant compliance nightmares?
Other Transfer Taxes
If the estate tax goes, will the generation-skipping transfer tax go with it, at least as to transfers at or after death? Would the gift tax be repealed too? In 2001, the gift tax not only was kept, but its exemption was frozen at a level below the estate tax exemption. No one really knows what the current Administration wants to do.
So What Should You Do Now?
Many of the clients we’ve spoken with are continuing to plan for the status quo, and will react to whatever happens next, because future developments are impossible to predict. If anything similar to the Canadian-style system is imposed, then planning to get appreciated assets out of the transfer tax system (perhaps by some of the same tried-and-true estate planning techniques in use today) will become even more important, so that any exemption against capital gains tax at death will be maximized. Or maybe we’re in for a replay of 2001-2010, in which case clients will continue with the same type of planning as before. Or maybe, as happened in late 2010 and again in late 2012, a system no one anticipated (the current system under which we are operating) will appear unexpectedly over one weekend and get passed by Congress two days later. The only certainty is uncertainty. If there are non-tax estate planning motivations, issues or concerns – or current income or estate tax issues that need to be addressed – or any other impetus for transferring assets to intended beneficiaries, please let us know if we can help. Otherwise, stay tuned!
*RANDALL A. DENHA, J.D,, LL.M., principal and founder of the law firm of Denha & Associates, PLLC with offices in Birmingham, MI and West Bloomfield, MI. Mr. Denha continues to be recognized as a “Super Lawyer” by Michigan Super Lawyers in the areas of Trusts and Estates Law; a “Top Lawyer” by D Business Magazine in the areas of Estate Planning and Tax Law; a Five Star Wealth Planning Professional; Michigan Top Lawyer; New York Times Top Attorney in Michigan and a Lawyer of Distinction in the areas of Estate and Tax Planning. Mr. Denha can be reached at 248-265-4100 or by email at email@example.com