Barulich Dugoni Law Group, Inc.
400 South El Camino Real
Suite 1000
San Mateo, CA 94402

Phone: (650) 292-2900
Fax: (650) 292-2901
Legal Expertise With You in Mind - BD Law

Trust & Business Counselors

Legal Expertise with You in Mind - Barulich Dugoni Law Group is different from other law firms. We believe that our clients are best served by avoiding rather than winning issues.
Trust & Business Counselors - BD Law

Trust & Business Counselors

Legal Expertise with You in Mind - Barulich Dugoni Law Group is different from other law firms. We believe that our clients are best served by avoiding rather than winning issues.
Barulich Dugoni Law Group Office
Barulich Dugoni Law Group Office

Estate Tax Updates – News and Views

Our new webpage includes analyses of the Republican Party and Administration platforms and agendas, together with our best strategies and recommendations. We plan to post regular updates as new legislation is introduced in Congress. So, please plan to visit our webpage often for the latest news and information.


Estate Tax Updates - News and Views

Trump And Your Estate Planning

It’s been roughly three weeks since Donald Trump was elected the 45th president of the United States. With Republican majorities in both the Senate and House of Representatives, the prospect is high that President-elect Trump will see some level of success with his proposed tax reforms. Even if conservative deficit hardliners find Trump’s proposals to be too expensive, one thing that he and the Republican leaders in the House can agree on is the repeal of the estate tax (the 2016 House Republican’s Tax Reform Task Force Blueprint called for, among other things, its repeal).

Although very little is still known about the plans being advanced by President-elect Trump to repeal the estate and generation skipping transfer taxes, which he often refers to collectively as the “death tax”, what we do know points to major changes to federal transfer and income tax policies.

What We Know

President-elect Trump’s website provides the following insight into his position on the “death tax”, a position which doesn’t seem to have changed since his tax reform plan was released in September of this year:

“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 the decedent’s relatives will be disallowed.”

President-elect Trump’s plan calls for the elimination of the estate tax and the generation skipping transfer tax (which imposes a tax on transfers to persons two or more generations below that of the person granting the gift). The intent appears to be to replace these structures with some form of capital gains taxation. Taxpayers would no longer be taxed on the full value of their gross estate. Instead, assets held until death would retain their original income tax basis (verses receiving a step- up to current fair market value) and a capital gains tax would be imposed on appreciation in excess of $10 million.

A Strong Need For Clarification

As commentators and practitioners alike weigh in on President-elect Trump’s plan, one thing is clear: there is a strong need for clarification. The details that have been released thus far are raising more questions than answers. These questions include:
  • Will death be treated as a realization event, with capital gains being subject to taxation at that time? Or, do inherited assets retain their “carryover” basis, such that capital gains are subject to tax when the inheritor sells the asset?
  • Will there be a $10M exemption per person? If so, will couples be able to maximize their exemptions through mindful planning?
  • Will there be some form of portability for the exemption, as we now have with the estate tax exemption?
  • Will there be an exemption for certain forms of marital transfers, as we now have with the unlimited marital deduction?
  • What kind of formal tracking and reporting of the exemption be required?
  • How does the current gift tax structure fit into this? Will lifetime transfers continue to be subject to the old gift tax structure, with own exemptions and tax rates? Or, will it be repealed in favor of something akin to what is being proposed for the estate and generation skipping transfer taxes?
  • Are businesses and farms going to be exempted from this taxation in some way (or is this language just a nod to the perceived effect the current tax system has on family businesses and farms)?

How Does All This Affect Pending Legislation

In August of this year, the IRS released proposed regulations under IRC Section 2704. These regulations are designed to limit the availability of valuation discounts for transfers of closely held business interests to related parties. The response to these proposed regulations has been overwhelming and a public hearing is scheduled for December 1, 2016.

It is highly unlikely that regulations will be issued in final form before President-elect Trump takes office. Because the proposed IRC Section 2704 regulations are tied to the federal estate tax, these regulations are unlikely to be a priority for the IRS while Trump remains in office. And, if the estate and generation skipping transfer taxes are ultimately repealed, the final form regulations may never see the light of day.

The future of these regulations is uncertain at best. Much is going to depend upon how the Treasury responds to the public hearing on December 1, 2016. We expect more clarity at that time.

What You Can Do

Although tax reform is likely, the nature and timing of these reforms is largely unknown. President-elect Trump’s 100-day action plan mentions nothing about the “death tax” but he could very well be looking for some easy “victories” in the early months of his presidency.

While only 0.2% of estates every year are subject to the federal estate tax (those estates worth in excess of $5.45M, or $10.9M per couple), the effect of these tax reforms will likely be far-reaching. Many estate plans (especially “pre-portability” trusts created before 2011) include tax-driven provisions tailored to eliminate or reduce estate and generation skipping transfer taxes upon death. If these taxes are repealed, clients may wish to revise their plans to instead maximize basis planning. Or, at the very least, to create some additional flexibility should repeal not be permanent (much like the estate tax repeal of 2010). In the end, a repeal of the estate and generation skipping transfer taxes would not eliminate the need to address other planning considerations, such as creditor, spendthrift and remarriage protections, spousal access and providing for vulnerable beneficiaries.

In such an uncertain legislative environment, we are advising clients to continue with their ongoing planning efforts. However, any planning that could result in adverse consequences if there is substantial change, including transfers that trigger the current payment of gift taxes, should be avoided. And, given the potential for lower capital gains rates in 2017, clients might want to consider deferring any unrealized gains until next year.

It bears noting that the life insurance industry and non-profit analysts have not as yet made known their opposition. These interests will be the most adversely affected and could present a formidable opposition to these proposed changes in the transfer tax structure. Some have even suggested that what Trump repeals today could be brought back by a future administration.

In the coming months, as more information becomes known, we plan to post regular updates to you, our clients, business partners, and friends.
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