Historically, the estate tax has come and gone, and in recent years, there has been a great deal of interest in trying to do away with the estate tax again. Donald Trump won this year’s presidential election, and he has spoken out about what he plans to do once he takes office. He’s got plans to reform healthcare, rebuild and strengthen our military, increase border security, and revamp our tax system, just to name a few. Although the official Republican platform does not address the estate tax specifically, President-Elect Trump campaigned on the proposed repeal of the estate tax, and his campaign website sets out estate tax repeal as part of his tax plan. A repeal of the estate tax is something long sought after by Republican legislators, and now, with a Republican president and a Republican majority in the Legislature, it may be possible. However, even if the estate tax may be repealed during Trump’s administration, it could be reintroduced at a later date. Therefore, planning for the contingency that there may be an estate tax even when there is not one in effect at the time is always advisable.
The estate tax is “a tax on your right to transfer property at your death”, per the Internal Revenue Service. Currently, there are twelve different estate tax brackets, ranging from 18% to 40% depending on the size of your estate, which is composed of property you own when you die. Historically, the estate tax has come and gone, but it was made “permanent” by the American Taxpayer Relief Act of 2012, or ATRA. As with all taxes, there is an exemption to the estate tax. ATRA increased the amount of an estate that is not subject to the estate tax (the “exemption”) to $5 million and provided for the exemption amount to be indexed for inflation annually. For the 2016 tax year, the estate tax exemption amount is $5.45 million, meaning that an individual with an estate worth less than that amount is able to transfer all of his assets at death without any estate tax being due. The exemption amount will rise to $5.49 million per person in 2017, allowing a married couple to transfer nearly $11 million in assets upon their deaths free of estate tax. ATRA also provided for the portability of the estate tax exemption, meaning that, in 2016, if the first spouse to die has assets worth only $3.45 million, the surviving spouse will be able to transfer the deceased spouse’s remaining estate tax exemption and protect $7.45 million in assets at their death (their $5.45 million exemption plus the remaining $2 million of the first spouse to die).
Trump’s website states that his tax plan includes “doing away with the death tax”, and with a Republican-controlled administration, he may have the support needed to accomplish that goal. As many people, particularly those with a great deal of wealth, may consider and engage in estate planning techniques intended to reduce their estate tax liability, it would seem that, without an estate tax, estate planning might become a thing of the past. However, while there is support for Trump’s stated plan, even having an agreeable Legislature would not make it a done deal. He still faces opposition from those who claim that the repeal of the estate tax would be a boon only to the ultra-wealthy.
Whatever the future of the estate tax may be, it is prudent to plan for potential changes in the law at a later date. Additionally, there are a host of non-tax-related reasons to get your planning in order, such as ensuring that your assets are transferred to the people or charities where you wish them to go at your death, protecting assets from creditors or divorce by placing them in a trust for children, and stating your end-of-life wishes for medical care. So even without an estate tax, having an estate plan remains of vital importance. Give yourself the gift of peace of mind this holiday season and consult a trained professional advisor to discuss the estate planning solutions that will best meet your needs.
The information provided is not intended to be legal advice and does not constitute an attorney/client relationship. You should consult with an attorney for individual advice regarding your own situation. Ms. Melancon has engaged in the practice of law in Ascension Parish for the last eighteen years. The primary focus of her practice is estate planning, probate, special needs planning and elder law. For more information or to attend an upcoming estate planning seminar, call her office at (225) 744-0027.