Estate Tax in a Trump Administration

11/16/2016

So now that Donald Trump has been elected President, what will happen to the estate tax.  What follows is an overview of the current estate tax law, what the Republicans seem to want and what Donald Trump seems to want.


1.       Current Estate Tax Law. 

            a.       Estate and Gift Tax Exemption.  Under current law, for 2017, the estate and gift tax exemption is $5.49 million per person (up from $5.45 million in 2016).  This means a person can leave $5.49 million to their heirs and pay no federal estate or gift tax.  In addition a surviving spouse can carry over each other’s unused exemptions, allowing a married couple to shield $10.98 million ($10.9 million in 2016) from federal estate and gift tax. 

           b.      Estate Tax Rate.  For taxable estates, the rate is 40%. 

           c.       Basis Rules.  Assets passed at death get a stepped up basis that allows individuals to avoid the capital gain tax.

 

2.       General Republican Position.  Estate tax repeal coupled with continued stepped-up basis. 

3.       General Trump Position.  From Trump’s website:

 “The Trump Plan will 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.  To prevent abuse, contributions of appreciated assets into a private charity established by the decedent or decedent’s relatives will be disallowed.” 

So what does this mean? 

  •        Estate tax repeal, with
  •        Modified step-up

So Trump’s position is estate tax repeal with a twist.  Repeal the estate tax and replace it with a capital gains tax at death for larger estates (note the current top capital gain rate is 20% compared to a top rate of 40% for the estate tax).