Last week’s election results have raised a number of questions about tax reform or repeal and the impact of such legislation upon your estate plan. It’s too early to tell how this will shake out. Nonetheless, below are the initial reactions of the members of the Davis Brown Tax and Estate department. Please contact us if you have any questions.
Transfer Tax Issues
- The applicable exclusion amount (a/k/a the unified credit) is likely to remain at $5.490,000 for 2017 and will continue to be indexed for inflation for future years.
- No change is anticipated regarding portability of a deceased spouse’s transfer tax exclusion.
- Repeal of the federal estate tax is possible.
- Adoption of the regulations proposed under IRC § 2704 (which addresses valuation discounts) likely will be slowed, postponed or abandoned. If the estate tax is repealed, these regulations likely will be abandoned.
- If the estate tax is repealed, the revenue generated by this tax will need to be replenished (a/k/a PAYGO). In the alternative, if Congress repeals the tax and does not replace the lost revenue, then the repeal law will sunset in 10 years unless 60% of the Senate votes in favor of that law (a/k/a the Byrd Rule).
- Congress may look to eliminate the step up in income tax basis at death to replace this lost revenue.
- Most estate planning techniques have tax and non-tax benefits. The non-tax benefits of your existing or proposed estate plan will not be affected if the estate tax is repealed. You should contact your estate planning professional to verify that your plan is current and makes sense in light of recent changes to the transfer tax laws.
- A Republican in the White House and the Republican Party controlling the House of Representatives and the Senate hasn’t happened since 2003-2006.
- The Republicans’ majority in the Senate is slight, 51-48, with Louisiana yet to identify one of its senators. It is possible for that control to shift.
- A similar situation occurred in 2001 following the Bush-Gore presidential race. 2001 began with the Senate split 50-50. Since Vice-President Gore was still in office, the Democratic party had a majority in the Senate. When President Bush was sworn in, Vice President Cheney shifted the control to the Republican Party. In June 2001, Vermont Senator Jeffords switched his allegiance from the Republican Party to the Democratic Party, which shifted the balance of power back to the Democratic Party.
- As is often the case, many promises were made on the election trail. While estate tax repeal has been on the Republican Party’s “to do” list for two decades now, only time will tell where repeal falls in the priority list relative to health care reform, immigration reform, tariffs on imports.
- On November 9, 2016, Senate Majority Leader McConnell said: “I don’t think we should act as if we going to be in the majority forever. We’ve been given a temporary lease on power if you will, and I think we need to use it responsibly.”
We live in a time when our government is revenue-challenged and political winds are volatile. It is too early to make any recommendations based solely on the federal election results.
If you have reviewed or updated your estate plan since the 2013 tax law changes, there is no immediate reason to change your estate plan. If you have not reviewed or updated your estate plan since 2013, it would be a good idea to do so to make sure your documents properly plan for portability, the increased tax exclusion amount, and new powers of attorney forms.
We will share more updates as things develop. For overview of the Iowa election results, review the Davis Brown Election Briefing.