Regardless of our political affiliations, I think we are all glad that the 2016 election is over. In any new administration, there are apt to be policy changes. This is particularly true whenever one party controls both the executive and legislative branches. In addition to other priorities, President-elect Trump and the Republican Congress almost certainly will take aim at the federal estate tax, with the goal of abolishing it entirely. What would that mean for estate planning? To answer that question, we first must review the present law and how existing estate plans are shaped around it.
Currently, the federal estate tax exemption is $5.45 million, meaning heirs and beneficiaries can inherit up to that amount tax-free. Given the high exemption, only roughly 3 out of every 1,000 Americans are subject to the federal estate tax. But many estate plans are nonetheless constructed to avoid estate taxes, especially those created in the early to mid-2000s when the exemption was much lower. In order to minimize or eliminate federal estate taxes, many of these plans utilized revocable living trusts with so-called A-B provisions. While such a design accounts for estate taxes, it can significantly restrict when and how beneficiaries receive their inheritances, potentially tying up your estate for years.
In the event President Trump and Congress get rid of the federal estate tax, clients with older plans may want to free up assets for their heirs and beneficiaries. Additionally, the focus of estate planning for wealthy clients will shift from estate tax avoidance to minimizing income and capital gains taxes and providing for incapacity.
If nothing else, the 2016 election puts an exclamation point on something I tell all of my clients: estate planning is not a single occurrence, but rather an ongoing process that must take into consideration one’s goals, wishes and personal circumstances as well as changing economic and political conditions. So, enjoy the holidays with family and friends. But make it a New Years’ resolution to review your estate plan with a knowledgeable attorney in 2017.