Well, it happened.
Something very few people saw coming: Donald Trump was elected President of the United States.
For most people, there are a whole host of potentially more pressing questions about what Trump's presidency will mean for the nation and the world, but only time will tell.
That said, let's take a look at his current federal estate tax plan, which is obviously subject to change and probably will.
Trump's website states the following:
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.
Because the above-quoted language is — to say the least — unclear, all we can do is attempt to interpret its meaning, in conjunction with Trump's general positions on other tax issues.
We can potentially interpret this to mean there will be a step-up in basis for up to $10 million of capital gain upon the owner's death and that any tax associated with the gain on the property will only be incurred if and when such property is sold.
For practical purposes, this could result in families owning the same property for generations with no tax liability on the intergenerational transfers and, potentially, a step up in basis upon subsequent transfers.
Some commentators have interpreted this statement a bit differently and theorize that death would be a “mark-to-market” recognition event, just as if the property had been sold. However, such an interpretation would likely result in significant liquidity issues and would effectively be a "death tax" by another name, but with a lower tax rate, which seems inconsistent with the statements Trump has made.
It's important to note that any permanent repeal of the U.S. Federal Estate Tax will likely require a filibuster-proof majority of 60 U.S. Senators, otherwise, such repeal would likely be temporary because it would need to be passed via a process called "reconciliation," which limits debate to twenty-four (24) hours for laws that don't sigfnificanly increase the federal deficit beyond ten (10) years. Further, the Republican Senate majority is only 51, but could increase to 52 after a runoff, which would require either 8 or 9 Democrats to "cross the aisle" and vote in favor of a permanent repeal. If you recall, the U.S. Federal Estate Tax was actually repealed during 2010, but then came back into existence in 2011 via the Economic Growth and Tax Relief Reconciliation Act of 2001, which was passed, as its name makes clear, through reconciliation.
As noted above, however, Trump's policy is not very clearly described and will likely change in the coming months as it is more fully developed and fleshed-out.
This brief overview of some important considerations associated with the federal estate tax is by no means comprehensive. Always seek the advice of a competent professional when making important financial and legal decisions.
Steve Cook is a estate planning lawyer at Cook & Cook. Although his main office is located in Mesa, Arizona, he represents clients throughout the Phoenix, Arizona Metropolitan area including the following east valley cities: Scottsdale, Paradise Valley, Tempe, Chandler, & Gilbert.
