At the time of this writing, President-elect Donald Trump is preparing to take office. This marks a dramatic change in political philosophies as we will soon have a Republican president, a Republican-controlled House and a Republican-controlled Senate. Thus, there is a likelihood that we will see and hear about drastic changes in the tax code.
Does this mean that the estate tax will be abolished? Does this spell the end to advanced estate tax planning? If you listen to many estate planners or read many of the media articles, it seems like this just might be the case.
But wait, hold on, take a deep breath. Let’s think this through and be rational. Here are five reasons not to overreact to the possibility of estate tax repeal. The bottom line is to resist the temptation to tell your clients not to march forward with their gifting.
Filibuster Rules: A filibuster is a procedure where debate over a proposed piece of legislation is extended, allowing one or more members to delay or entirely prevent a vote on a proposal. In order to avoid a filibuster in the Senate, a vote of 60 is needed rather than a simple majority vote of 51 of the 100 Senators. Thus, the abolishment of the estate tax requires 60 votes. Alternatively, “budget reconciliation” legislation can be passed by the Republicans which only requires a majority vote, not the 60 Senate votes to avoid a filibuster. However, a budget reconciliation is subject to the Byrd rules, the same rules that restricted George W. Bush’s 2001 legislation to a ten-year period and thus would create another fiscal cliff, this one as December 31, 2026 ends. That would put us back where we started and therefore harm all of our clients who are paralyzed by indecision.
History of Permanent Estate Tax Repeal: Even if the estate tax is “permanently” abolished, will the estate tax return at the end of Trump’s reign as president? Historically, every time the estate tax has been “permanently” abolished, it has returned. This has happened multiple times.
Another History Lesson – Looking Back at 2006: In the year 2006, Republican President George W. Bush tried to repeal the estate tax, along with the Republican-controlled House and the Republican-controlled Senate. However, they only got 57 votes in the Senate when it went to vote on June 8, 2006 rather than the 60 needed to avoid the Filibuster rules. This is what happened then…and this is what might happen now.
Valuation Discounts Might be Limited: The Treasury is working on new valuation discount rules which, as currently written in the Proposed Regulations issued in August, would remove almost all valuation discounts for interfamily transfers of business interests. Depending upon the final language in the statutes, there could be a significant lost opportunity for any client who stops planning, later finds that the estate tax either isn’t abolished at all or is abolished and then returns.
Looking Backward: Would you advise your clients to unwind all of the irrevocable gift trusts that they have set over the years? Probably not. So if you wouldn’t unwind the ones that are already in place (for so many obvious reasons), why would you tell your clients not to set up new gift trusts? It’s nearly exactly the same analysis, looking backward versus looking forward.
The bottom line is that people tend to overreact whenever there is a change in Congress. The estate tax has been a near-fixture in the United States for more than a century. It has been “permanently” repealed multiple times and has always come back. We need to focus on the long-term, not the short-term. And it is our job as estate planners to keep our clients from overreacting.
And it’s not just the clients. The advisors often overreact too. There are articles and blog entries authored by advisors suggesting the near-certainty of estate tax repeal without fully considering many of the points made in this article.
Regardless of the course of new tax legislation in Washington, there are a number of key planning strategies that experts already know will be “hot” for 2017. Join us, along with Robert Keebler and Steve Oshins, on Thursday, January 26th and Friday, January 27th at 9am Pacific Time (12pm Easten Time) for two 90-minute practical, information-packed, timely teleconferences entitled, “The Top 25 Estate Planning Strategies of 2017”. >>MORE INFO
ABOUT THE AUTHOR
Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at [email protected] or at his firm’s website, www.oshins.com.