How some Republican proposals might affect estate plans

How some Republican proposals might affect estate plans

| Jan 5, 2017 | Estate Planning |

Ohio residents may want to consider how Donald Trump’s election and the Republican majorities in both the House and the Senate might affect their estate plans. Understanding the proposed changes and incorporating clauses in their plans might help them to avoid some potentially detrimental impacts.

Trump talked throughout his campaign about repealing the estate tax. However, this would only benefit people whose estates exceed the federal exemption amount. A repeal would have no benefit for the majority of people whose estates do not exceed the federal exemption. What could impact the rest of people is the proposal to tie an estate tax repeal to a change in the capital gains rules.

Potential changes to capital gains rules include erasing the stepped-up income basis that people currently enjoy when they inherit capital assets such as real property or stocks. Currently, a capital asset’s basis is stepped up to the fair market value as of the date of the testator’s death. Any appreciation that happened prior to that date is not taxed. People only have to pay capital gains tax if they later sell the capital asset for an amount that is higher than the new basis. The proposal is to impose a tax on a “deemed sale” as of the date of the owner’s death, which means many estates will lack the liquid assets to pay that obligation.

Estate protection is an important aspect of sound estate planning. People might want to revisit their estate plans with their attorneys in order to understand how their plans might be affected if some of the proposed changes become law. An attorney might help by adding new provisions that may take effect only in the event that one of the changes occurs. This may help to prevent people from losing substantial portions of their estates to taxes.