As this election cycle’s presidential candidates have made clear, the future of the estate tax is very much in play. The estate tax, the tax on the transfer of the estate of a deceased person, has long been a political point for various politicians and their parties, whether their position is to increase or decrease the amount taxed from each estate. Whichever candidate wins may bring substantial changes to how the federal estate tax is applied.
Changes to the federal estate tax are nothing new. Ever since the rudimentary federal estate tax was implemented in the United States back in the 18th century and the modern federal estate tax was enacted in 1916, the amount that each estate was exempted and what tax rate was applied has fluctuated. In the past decade, the federal estate tax exemption, the exemption that sets the amount that each estate does not have to pay taxes on in regards to the federal estate tax, has risen rapidly, currently sitting at $5,450,000 for each individual and doubling for a married couple.
Unfortunately for lawyers who specialize in estate planning and everyone else, the tax exemption is a constant area of debate, and whoever wins the presidency will seek to make changes.
Ms. Clinton would increase the maximum tax rate to 65 percent from the current top rate of 45 percent. This rate would apply to estates in excess of the current estate tax exemption of $5,450,000. While this may not be an issue for most people, Ms. Clinton’s proposal for the estate tax exemption also include an elimination of the step-up basis rule that currently allows beneficiaries to receive inherited property, like real estate and stocks, with a new tax basis at no capital gain income tax penalty. The latter change has a much higher chance to affect everyone regardless of the total amount of assets more than the former change.
Mr. Trump’s plan for the federal estate tax lies in the exact opposite direction of Ms. Clinton’s. Rather than change the amount that is exempt or the rate at which it is taxed, he would do away with the federal estate tax completely. Therefore, there would be no tax on an individual’s estate when they pass away, regardless of the size of the estate.
No matter who wins the presidency, they will have to go through Congress to make any changes to the federal estate tax or any other estate tax changes. The history of the federal estate tax is full of rise and falls of exemptions and amount taxed depending on who was in control at the time or what popular opinion was. When these changes do take place it is important to sit down with your estate planning attorney and make the updates necessary for your estate plan. Charles D. Stark in Sonoma County is an experienced attorney ready to meet your estate planning needs. Contact him online or call (707) 527-9900 to schedule an appointment today or reach out online.