CA Estate Planning Blog

Monday, October 16, 2017

How Should Your Estate Plan Change in Response to Trump’s Tax Plan?

President Trump and the GOP have unveiled a potential tax reform plan that could impact your estate plan.  Any Californian with an estate plan in place, or those who have put off estate planning, should take the time now to fortify their estate plan in the face of potential tax changes.  Our California estate planning lawyers explain what is included in the new tax plan, and what it leaves unclear, as well as what you should do to prepare for coming changes.  

Repeal of the Estate Tax

The Trump administration announced a sweeping plan to cut a variety of taxes in September.  One component to the tax plan is the repeal of the estate tax.  The estate tax is a hefty fee assessed to an heir’s inherited portion of an estate if the estate exceeds financial limits, currently set at $5.49 million for an individual.  For the wealthiest Americans, the estate tax can be devastating.

In addition to repealing the estate tax, the proposed plan would further eliminate the generation skipping transfer fee.  This tax imposed a fee on the transfer of assets to grandchildren or unrelated people more than 37.5 years younger than the donor. Elimination of both of these taxes could reduce the need for top earners to transfer assets before death.  However, Californians should not stop their lifetime giving as the future of the estate tax is ever changing.

Gift Tax Not Addressed

While the new tax plan made some changes clear, it also failed to explore the future of several other types of taxes. The plan did not mention the gift tax.  If the gift tax is eliminated, it could lead to more lifetime transfers in trust.  Transfers could reduce the assets bequeathed at death, which could have an impact if the estate tax is not repealed or adopted again by a later administration.  

Tax reform under the Trump administration is still in its early days.  It is unclear whether the tax reform bill will be adopted as proposed, and the full details of the tax plan are still unknown.  Californians should maintain flexibility in their estate plan. High earners may wish to avoid making large gifts that may result in gift tax liability until the future of the gift tax is clear.  Similarly, high net worth individuals should continue to engage in lifetime estate planning as the estate tax is still in existence as of now.


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