What President-Elect Trump and the Republican Party have in Store for You: Estate, Gift and Generation Skipping Transfer Taxes

Newsletter | Nov 14, 2016 | Hook Law Center

Well, one of the more painful election cycles I have ever experienced is, thankfully, over. Now that the American people have finally cast their votes and elected Donald Trump to the White House and a Republican-controlled Congress, it is natural to wonder what changes, if any, you can expect. Certainly, a lot of promises have been made. And, of course, until the actual change in power takes place in January, it is impossible to predict what the ultimate results will be. However, we thought you might like a preview of what we might expect from our newly elected leaders.

In June, 2016, the House Republicans released “A Better Way: Our Vision for a Confident America”. In it, they reiterated their oft-repeated promise of repealing the federal estate tax and the generation-skipping transfer tax. However, there is no mention of a repeal of the gift tax. This is consistent with the “Death Tax Repeal Act of 2015” introduced in the House and Senate in the spring of 2015. The “Death Tax Repeal Act of 2015” provided for the repeal of estate and generation-skipping transfer taxes; however, it retained the current law with respect to the annual gift tax exclusion amount and the current lifetime exemption ($5.45 million for 2016). The maximum rate for the gift tax would be 35%. All transfers into trust would be treated as taxable gifts unless the trust was a “grantor trust”. Finally our current carryover basis rules and stepped up basis at death rules would continue to apply.

Donald Trump’s Tax Plan as related on his website (www.donaldjtrump.com/policies/tax-plan) states that he intends to repeal the estate tax with a catch. Capital gains on appreciated assets in excess of $10 million is subject to tax. (No tax rate is stated but the current highest capital gains tax rate is 20%. It seems likely that this rate would be applicable.) However, appreciation on small businesses and family farms are to be exempt from this capital gains death tax. In addition, contributions of appreciated assets to private charities established by the decedent or the decedent’s relatives would be disallowed. There is no mention of the gift tax or the generation-skipping transfer tax (this is a tax on transfers to persons more than one generation below that of the transferor and the law on it is very complex).

These plans are not entirely reconcilable. Under President-elect Trump’s plan, a 20% capital gains tax would be imposed on appreciated assets owned at death if the appreciation was in excess of $10 million and the assets in question are not family farms or small businesses. Because it would be very simple to avoid this tax by giving assets away shortly before death (and frankly, this would not be a problem for most Americans), it seems to me that his tax plan would have to address the issue of the gift tax in some fashion.

However, I would anticipate that the desire in Congress to fully repeal the estate tax and the generation skipping transfer tax (again) would likely pressure Mr. Trump to alter his plan to accommodate his fellow Republicans. After all, his plan as stated is not actually workable. The Republican vision as set forth in the “Death Tax Repeal Act of 2015” may well get worked over some more when the lawmakers actually think they have a chance to pass tax reform. The current proposal has “planning opportunities” that would make avoidance of the gift tax possible.

So, what does this mean for you? Unfortunately it means that we are likely walking into a period of uncertainty for how long these taxes may remain on the books and how they may be transformed by Congress. Given that a Republican led Congress also wants to balance the budget, it is possible that these changes may phase in over time. Should you delay making annual exclusion gifts in 2016? Absolutely not. The changes, if they come about, will not be effective before Mr. Trump takes office. Should you stay in touch with the attorneys at the Hook Law Center? Absolutely. We will analyze the changes and inform you of how they will affect you and your existing plan and whether you need to make any changes. However, since the last round of estate and gift tax reform increased the lifetime exemptions in excess of $5 million, most of you will not need to alter your current estate plans to accommodate the tax law changes. Your plans already reflect that you are not subject to the various taxes and are structured to protect your families and your non-tax related goals. For those of you who have been facing an estate or gift tax issue currently, stay tuned.

Ask Kit Kat – Learning From Bees

Hook Law Center:  Kit Kat, what can you tell us about bees in northern Alaska which are helping scientists gather information about climate change?

Kit Kat:  Well, I think this is fascinating. Scientists from the University of California, Riverside traveled to Prudhoe Bay, north of Fairbanks, along the Dalton Highway, made famous by the TV show “Ice Road Truckers.” They were looking for the Polaris bumblebee, known scientifically as the Bombus polaris. Increasingly as the earth’s climate warms, this particular bumblebee has migrated north into the Arctic, where climate change is happening at a fast pace. Climate change in the Arctic is evident by the fact that areas once covered only in low plants and lichens are now able to support willow trees. The expedition is being financed by a grant to foster collaboration among scientists. Six scientists participated. Their job—collect specimens and bring them back to the lab for further testing.

One of the scientists, Dr. S. Hollis Woodard, calls the bumblebee ‘…the pandas of the insect world.’ They are the largest of bees, and like the panda, they are big and move slowly. In contrast to the honeybee which tend to live in large colonies of 100,000 bees or more, the bumblebee lives in small clusters, ranging from 50 to a couple of hundred. Most bumblebee colonies live for one season, Most die as the weather turns cold. However, a few hearty females that have already mated, seek refuge under the tundra, and in essence hibernate until spring. They are the only bees which manage to survive in the Arctic, where temperatures go as low as 60 below zero. They do this by shivering their muscles. This can raise their body temperature to a toasty 95 degrees, even though the outside temperature may be at the freezing point.

There is some urgency to the scientists’ work. Just this past September of 2016, the US Fish and Wildlife Service proposed that the rusty patched bumblebee, previously very common, be considered endangered. There are 250 bumblebee species, but scientists become alarmed when even one shows signs of decline.  Each bee that is captured is placed in a plastic tube, which is then given a shot of ordinary compressed air from a can available at the average grocery store. This immobilizes the bees. Then bodies and inside organs are separated and placed in a solution to preserve them. Back at the lab in California, they will conduct the examinations which will tell us more about the bees, how they survive in such adverse conditions, and possibly the implications about changing climate. (James Gorman, “Six Scientists, 1,000 Miles, One Prize: The Arctic Bumblebee,” The New York Times, Oct. 7, 2016) (http://nyti.ms/2dFqzYi)

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