Trump and the Estate Tax: What We Know
The foregoing outlines the estate tax policies proposed by Donald Trump as part of his planned overhaul of general tax policies. While it remains to be seen to what extent an overhaul can be achieved, this is what is known about where president‐elect Trump stands today:
Under current law, the 2017 federal estate tax exemption will be $5.49M (adjusted yearly for inflation). For assets above the exemption, the top federal tax rate is 40%. Many states have additional estate tax rates at various levels.
These have recently been coupled with the estate tax, so that both the gift and generation skipping tax (“GST”) exemptions are also capped at $5.49M for 2017.
Eliminate all estate, gift and GST taxes.
Under current law, any unused federal estate tax exemption of a deceased spouse is added to the available exemption of the surviving spouse if proper election is made on deceased spouse’s estate tax return.
Elimination of estate tax voids portability.
Annual Gift Exclusion
Under current law, the annual gift exclusion is $14,000.
Elimination of estate, gift and GST taxes voids need for annual gift exclusion.
Basis of Assets Acquired by Inheritance
Current: Upon death, beneficiaries obtain stepped‐up basis to fair market value.
Eliminate stepped‐up basis. Capital gains to be taxed upon death without a step‐up in basis. However, allows for $10M exemption. For transfers above the $10M mark, the proposal contemplates retaining the applicable 20% capital gains rate. Trump has further proposed a repeal of the 3.8% net investment income tax.
Consensus is that there will be a major shift in the federal estate tax, but it is inaccurate to say that death taxes will be fully extinguished. Preserving the capital gains tax (at the current 20%), while invalidating a “step‐up” in basis at death is still a tax, albeit one with a practical effect of less than half of the current federal estate tax of 40%.
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