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Estate Tax Proposals of the 2016 Presidential Candidates

Posted on: August 24th, 2016
candidate tax proposalsAs we progress further into this election year, Americans are learning about each Presidential candidate’s values and vision for our country. With the primaries over and less than three months until Election Day, media outlets will become even more saturated with coverage of the campaigns and opposing views of the parties. Regardless of which candidate winds up taking office, the result of this election could bring potential changes to the federal estate tax that would likely have a large-scale effect on existing and contemplated estate planning.

The estate tax exemption for the 2016 tax year is $5,450,000 (or higher for surviving spouses who elect portability); this amount, which is unified with the lifetime gift tax exemption, is decreased by the amount of taxable gifts made during a decedent’s lifetime. Estates with taxable values in excess of the remaining exemption amount available at their death are taxed at a maximum rate of 40 percent. Later this year, inflation adjustments might be announced for the estate tax in the 2017 tax year; however, an amendment or repeal is expected after the Presidential election.

Democratic Presidential nominee Hillary Clinton’s proposal pertaining to estate taxes includes significant change. Clinton proposes to remove the inflation adjustment, increase the tax rate to 45 percent, and reduce the estate tax exemption to $3.5 million. Her proposal also includes provisions that would decrease the gift tax exemption to $1 million.

Republican Presidential nominee Donald Trump’s proposal includes substantially more changes, as Trump proposes to remove estate and gift taxes. 

Incorporating either of these proposals into federal estate tax legislation will have a significant effect on estate administration and planning efforts. If proposals from either candidate are enacted into law, it will be important to review planning goals and existing documents to determine whether those goals are still met in the light of new legislation and, if not, whether alternative planning tools should be implemented. Individuals and families may wish to review estate and gift tax implications with their estate planning attorney to discuss whether and what type of trust should be established as part of their plan to achieve tax goals should the tax laws change. For example, gifts to certain trusts and those made to domestic asset protection trusts are recognized differently for tax purposes. 

Keep in mind, revising plans could be time-consuming depending on the type of trusts and assets involved. When and if the time comes that tax law changes go into effect, there might be limited opportunity to make the desired changes. A few advance adjustments could preserve existing goals while at the same time make plans more flexible for expedient revisions in the future.
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