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Tax Items Affecting Estate Plans in Obama’s 2017 Proposed Budget

Posted on: March 28th, 2016
obama budget estate taxPresident Obama submitted his final proposed Budget of his last presidency term. The 2017 Budget proposal introduces several funding adjustments for cybersecurity, education, and energy, as well as proposed changes to capital gains tax, estate tax, retirement savings, and multiple tax credits.

It remains to be seen which proposed items Congress will reject, accept, or revise. Until the budget passes, individuals should stay current with items noted below that could affect their estate planning decisions:

Capital gains. The top tax rate on capital gains and dividends would increase to 28 percent (inclusive of the 3.8 percent Net Investment Income Tax). The “step-up” in basis would be eliminated. Instead, appreciated property transfers from a deceased owner, as well as gifts, would be treated as sales. If this provision passes, capital gains would apply to appreciated property transfers.

Estate tax. The Budget proposes to return estate tax rates back to 2009 limits. In 2009, the estate tax rate was 45 percent and a $3.5 million tax exclusion applied to estate and generation-skipping transfers. A gift tax exclusion of $1 million had been in place. If this item passes, it would go into effect less than five years after the federal estate tax was permanently repealed (as part of the American Taxpayer Relief Act). This is not the first time since the repeal that Obama has attempted to re-impose 2009 terms. He included the same proposal in his 2013 Budget.

Retirement savings. Individuals who are one of at least ten other employees and who do not have an employer-provided retirement account would be enrolled in an Individual Retirement Account (IRA) under the Budget terms. The provisions would require employers (with ten or more employees) to register employees in an IRA. If this Budget item passes, many Americans will have an additional asset to add to their estate plan reviews.

Tax credits. Education, earned income, and child and dependent care tax credits would all increase as part of the proposal. (See p. 38 and p. 48 of the Budget for exceptions and qualifications.)

Individuals may elect to explore different estate planning options to help alleviate potential tax burdens if some of the provisions noted above are passed. Stay up-to-date on tax changes by subscribing to our blog or following our tax attorneys on Twitter @estateplansNC.

By Attorney Samantha Reichle

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