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Apr 2017
04
April 04, 2017

Where Does Estate Tax Repeal Fit Into the Trump Administration's Agenda?

With the Trump administration in full swing, many wonder how and what issues the newly elected 45th President will tackle in his first 100 days. During his campaign for the presidency, Donald Trump raised issues that resonated with an electorate disgruntled with the political establishment. Among President Trump's promises is tax reform for the business sector and individual taxpayers, and a vow to repeal the estate tax. 

The general consensus is that a repeal of the estate tax is unlikely to occur within the President’s first 100 days. Experienced estate planners believe that, eventually, the estate tax and the generation-skipping transfer (GST) tax will be repealed; however, most also agree that the gift tax will be retained. The step-up in basis rules of section 1014 of the Internal Revenue Code (IRC) would likely be eliminated as well in favor of modified carryover basis rules (retaining the asset's tax basis among transfers). This model would mirror the one-year estate tax repeal that occurred in 2010. 

Others predict that President Trump's plan will include measures similar to those employed in Canada: effectively treating death as a sale of assets event for capital gain purposes, though there are also whisperings of a $10 million capital gain exclusion to mitigate any such tax.

Indeed, House Republicans undertook preliminary measures to repeal the estate tax, prior to President Trump's inauguration. On January 10, 2017, Rep. Kristi Noem (R-SD) indicated she would be the lead sponsor on estate tax repeal legislation with Rep. Sanford D. Bishop Jr. (D-Ga.) as co-sponsor. Some of the major proposals of the bill would include:
 
  1. Repealing both the estate and GST taxes, effective for decedents dying after its enactment;
  2. Retaining the gift tax, with the present annual exclusion ($14,000 per donee) and indexing for inflation;
  3. Reducing the top gift tax rate to 35% for transfers over $500,000;
  4. Retaining the rules under Chapter 14 of the IRC that limits the valuation of assets/interests transferred into trusts;
  5. Retaining the present basis adjustment rules (allowing asset step-up in tax basis to date of death values); and
  6. Retaining the grantor trust rules allowing settlors of trusts to retain ownership, for income tax purposes, of assets they have transferred into a trust that are wholly owned by them or their spouse. 
Additionally, as of January 24, 2017, five bills (four from the House and one from the Senate) have been introduced, all advancing slightly different variations of an estate tax repeal. In these most recent updates there is no mention of an estate tax regime similar to that of Canada's. 

While a bill advancing repeal of the estate and GST taxes would not have a problem passing in the House and Senate, Republicans still lack numbers in the Senate to prevent an eventual sunset on the repeal under the Byrd rule. So, unless Republicans can whip additional votes to their side to obtain the 60 required votes to put an end to this debate, the estate tax repeal would not be permanent.

It seems that Congress, or at least the Republicans, will be busy deciding which bill to advance for President Trump's signature, but with so many options on the table, it is difficult to determine which bill will be the forerunner. Given the similarities between some of the bills, it seems likely that some derivative of the 2010 estate tax regime will be the model for President Trump's estate tax repeal.

Despite uncertain times for the estate tax, those in need of estate planning should not defer until a later date. Tax laws will remain subject to change from administration to administration and many opportunities remain for flexible estate planning that will survive the estate tax rollercoaster.  

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