May 22nd, 2017

Proposed Elimination of Federal Estate Tax Under Trump

In his tax reform package, President Donald Trump has recommended the elimination of the United States Estate Tax. Under current law, there is an estate tax exclusion equal to $5,490,000.  Thus, under current law, a single individual with an estate of $5,490,000 or less would not have to worry about the Federal Estate Tax liability in his or her estate unless taxable gifts were made during a lifetime. Thus, the proposal to eliminate the U.S. Estate Tax has been criticized as being another “tax break” for the wealthy.

I think it is fair to say that the majority of individuals providing estate planning services believe that the United States Estate Tax will be eliminated.  However, even if it is eliminated, there are other considerations other than the estate tax that needs to be considered especially by wealthier individuals. Some factors that need to be considered in drafting an estate plan for wealthy individuals are as follows:

  1. Will the repeal of the estate tax be permanent?  If it is not a permanent repeal, wealthier, married clients should consider giving by way of inheritance or lifetime gifting some assets to children rather than the whole estate to the surviving spouse.
  2. If the first spouse to die has more than sufficient assets to protect the surviving spouse and if so, consider making gifts upon the first spouse to die to children, grandchildren, etc. in addition to the surviving spouse.

If, in fact, the Federal Estate Tax is repealed, married clients who used a formula bequest to reduce the federal estate tax to zero (through the marital deduction) and the balance into a trust for the surviving spouse (drafted in a manner not included in his or her estate upon subsequent death) have outdated Wills.  In all likelihood, if the Federal Estate Tax is repealed, these type of Wills will have to be reviewed and changed to comply with the new law.