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Thursday, March 2, 2017

Estate Planning | The National Elections and Their Impact on Your Estate Plan

Summary: There are many things that can influence your estate plan and indicate a need for a change to your plan. That's why estate plan "checkups" are so important; they give you an opportunity to take a closer look at these events and how they impact the plans you've made. Sometimes the influential event is a change in your life; sometimes it's a change in the law. Whenever the country elects a new president, that election's result could impact the laws related to estate planning. That is especially true in 2016, as the outcome of this election could greatly impact the estate tax laws and, for some people, necessitate a significant re-analysis of the plans they've made.  


The two major party candidates appear to have significantly different visions of what the federal estate tax should look like under their leadership. Democrat nominee Hillary Clinton has proposed an increase in the estate tax rate. Under the Clinton plan, an estate that owed estate taxes would pay between 45 and 65 percent, depending on the size of that estate. Additionally, Clinton's plan would make a broader range of estates obligated to pay the tax. Currently, the estate tax exemption is $5.45 million for an individual, or $10.9 million for a couple. Clinton's plan would drop that exemption to $3.5 million for individuals, the lowest the exemption amount has been since 2009.

Republican nominee Donald Trump's plan calls for a complete elimination of the estate tax, but would impose a different tax at death in certain cases. Under Trump's plan, the federal government would impose a capital gains tax at death on assets in an estate that had appreciated in value over time. This would mean that anything from collectible fine art to investment holdings could be taxed at a rate just below 20%. The Trump plan would, however, carve out a $10 million exemption for small businesses and family farms.    

The leading candidate outside the two major party nominees is Gary Johnson of the Libertarian Party. Johnson's tax plan calls for a complete elimination of the estate tax, along with all income and payroll taxes. Under Johnson's plan, they would be replaced with a national consumption tax commonly known as the "Fair Tax." 

Each of these candidate's plan would obviously have a dramatically different impact on the planning of one's estate. Were Johnson to become president and enact his plan, there would be no need for any sort of estate planning to eliminate or minimize estate tax obligations, as no potential tax obligation would exist. Were Trump to become president and enact his plan, there might be a substantial need for some people to significantly alter their estate plans. If, for example, the Trump plan only imposed its capital gains tax on assets located inside a deceased person's probate estate, then the establishment of this plan might, for a substantial range of people, greatly expand the benefits of utilizing trusts as part of their estate plans. The Trump plan might also create other new techniques for minimizing or eliminating the death-triggered capital gains tax proposed under his plan.

If, as many pollsters forecast, Clinton becomes president, then many people may want to re-visit their estate plans. Currently, a married couple can potentially pass $10.9 million ($5.45 million each) of wealth at death without paying federal estate tax. Clinton's plan would lower the exemption to $3.5 million, or $7 million for a couple. This means that substantial number of estates that would owe nothing under the current system would be facing an estate tax obligation of between 45 and 65%. This could have dramatic impact on the considerable number of people with estates between $7 and $10.9 million, including small business owners and farmers. For these people, it would become essential to explore avenues for reducing the size of their taxable estates. These techniques can include trust planning options like Irrevocable Life Insurance Trusts, Qualified Personal Residence Trusts, Charitable Trusts and Grantor Retained Trusts. It may also involve establishing limited liability companies (LLCs) and/or Family Limited Partnerships (FLPs). 

Regardless of which candidate becomes president, the election reminds us that laws, including the laws impacting estate planning, can change, sometimes dramatically. Getting a periodic estate plan "checkup" can help you secure the peace of mind that comes from knowing that your plan is best equipped to deal with whatever the changed legal landscape looks like.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at www.legacyassuranceplan.com

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