Estate planning under a Trump administration

jason harrel
Jason Harrel

One of President-elect Donald Trump’s campaign promises was reform of the Internal Revenue Code.  With respect to the estate tax, what does that mean?

According to Trump’s campaign website,  his plan is to “repeal the death tax, but capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms.”

There’s much detail there, but it sounds as though there will be no separate estate tax. I would therefore presume that capital gain assets over $10 million will not be entitled to a stepped up in basis at death and will be subject to capital gains income tax when the capital gain assets are sold.

The Trump plan is to retain the current capital gains tax rate of 20 percent.  Thus, for substantial estates, there will be a reduction in overall taxes in relation to the estate tax and income taxes.

Does this mean, under a Trump administration, estate planning is no longer needed?  The resounding answer is no.  Estate planning during a Trump administration remains extremely important.

Estate planning is the legal process of arranging your affairs by establishing control documents to manage your assets during your lifetime and how those assets will be disposed of upon your passing.  Less than 2 percent of all estates are subject to the estate tax with the current exemption amounts, so planning for estate taxes does not come into play for most of Americans. Thus, the most important part of estate planning will remain unchanged under a Trump administration.

The control documents to manage your estate typically include a will, a revocable living trust, a durable power of attorney and an advanced health care directive.

The durable power of attorney gives your agent the power or authority to manage your assets while you are alive.

The advanced health care directive provides instructions to your agent with respect to your health care when you are no longer able to communicate those instructions to your health care provider.

The will (or Pour Over Will) when used with a trust will dispose of very little of your estate or provide little instruction because the goal is to have your assets disposed of according to the terms of your trust.  Your trust provides the instructions for disposing of your estate.  If your estate is structured properly, it will be a private affair and will not be subject to the prying eyes of the public through a probate process.

In setting up your trust, you, as settlor or grantor, will transfer your assets to a trustee who will manage the assets per a legal agreement.  Typically, the settlor is the initial trustee, so you retain control of your assets while you are alive. Upon the settlor’s incapacity or death, a successor trustee will be appointed to manage your assets. The basics sound simple enough. However, the devil is in the details.

Every estate plan is different and there is no single structure that works for everyone.  Effective estate plans analyze a person’s desires with respect to the disposition of their assets, analyze those assets, and put in place the proper documents to implement the person’s instructions.

Although there is not a single estate planning structure that works for everyone, there are customary situations and common issues that arise in most estates.  Some of those issues can include:

  1. In a husband and wife estate plan upon the first death, will all the assets be left to the unfettered control and ultimate disposition by the remaining spouse?
  2. In a husband and wife estate plan with multiple children, will all the assets be left equally to all the children?  If there is an operating business, what is to happen with it?  Will it be sold?  If one of the children works in the business, will they have to buy out their siblings and if so, how do you determine that buy out value?
  3. In a husband and wife estate plan with multiple children, will all the children be successor co-trustees upon remaining spouse?

In a typical estate plan, there are many issues that need to be discussed and addressed.  Estate tax, although it can be substantial where applicable, is just one issue.  Most likely, if an estate is subject to estate tax, there are many additional issues that also need to be analyzed.  A proper estate plan will address, as best as possible, all the likely issues that will arise.



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