Many of our clients have shown interest in President Donald Trump’s proposed tax plan and in particular the estate tax portion of that plan. So here’s a run-down of some of the proposals and how it may affect you, according to analysts.
According to a recent New York Times article, the plan reduces the top rate on individual income tax, which is now 39.6% for income over $470,000 for a married couple, to 35%.
Trump’s plan also eliminates a 3.8% tax, used to help fund The Patient Protection and Affordable Care Act, that applies to investment income over $250,000 for a couple.
Now let’s talk about the part of Trump’s plan that has gotten a lot of attention. According to Investment Advisor newsletter, Trump’s plan calls for a repeal of the current estate tax, which currently applies to individuals with estates of $5.5 million or couples with estates worth $11 million. It also calls for the repeal of a capital gains tax on estate assets worth less than $10 million with an exemption for family farms and small businesses. This would represent a change in the top tax rate from 40% (estate tax) to 20% (capital gains tax).
However, even if the estate tax is repealed, it is not clear whether the gift tax would also be repealed. There is also no mention of whether the current systems might at least be partially replaced with other tax exposure at death. For example, a requirement to report all capital gains at death, or a renewal of the “carryover cost basis” rules.
But what does this mean for you as we work together? If the appeal happens it could eliminate the focus on estate tax planning and shift that focus towards asset protection planning and income tax planning. But some analysts are concerned that there’s a potential for repeal but with a sunset provision which means we don’t want to fully count on that estate tax repeal from a planning perspective. And, according to pundits on both sides of the fence, unless the plan changes, it won’t pass, because right now it almost doubles the debt. So for your planning, we will be staying on top of all the news about this, keeping in place the estate planning strategies we’ve been successfully using to manage estate tax exposure, until it becomes clear whether the tax plan passes as it is. And we will of course keep you updated on all of it through our blog.
In the meantime, please feel free to call me at 212-755-4777 x100 to discuss any questions you may have about taxes, estate planning and life insurance.