Be Careful What You Wish For …
By: Helen Cripps | Published January 24, 2017
Be Careful What You Wish For …..
I just returned from the Heckerling Institute on Estate Planning. While we covered a lot of topics over the week, mostly related to taxes and other estate planning issues, like most attendees, I went with the hope that I would have answers to questions our clients have right now about what to expect with the new administration.
Everyone wants to know if the estate tax will be repealed. We don’t know. If it is, when will it be repealed? We don’t know. If it is, how long will it last? We don’t know, but we shouldn’t be surprised if it’s another 10 years of uncertainty, similar to what we had from 2000 to 2010. It’s possible (likely) that whatever changes we get will not be “permanent.”
However, what is almost never discussed by the public is what happens if the estate tax is repealed? Elimination of the tax sounds great, but a lot of time last week was spent speculating (yes, it’s still just speculation) about what would happen if repeal really happens.
It’s likely that the lost revenue is going to be raised in other ways. Changes in the basis rules were discussed extensively. Will we continue to have the stepped up income tax basis at death? Will we instead have carry over income tax basis at death? Remember, we had that for a year in 2010 and it was a nightmare.
Another revenue raising possibility is adoption of a system similar to the Canadian system, where death is a realization event; i.e, capital gains tax is due at death. That would certainly simplify the new rules we have to follow for basis consistency. Does this mean that estates that would not have incurred any estate tax due to their smaller size now incur a capital gains tax instead? Will some amount of stepped up basis be available to allocate to some assets?
What about the gift tax? We don’t hear anything about it going away. Will it’s purpose of avoiding the shifting of income to lower bracket taxpayers be as relevant if the income tax brackets are compressed?
Again, we don’t know.
The take away?? Stay tuned….