What estate planners might expect under Trump

Anthony G. Sandonato, BridgeTower Media Newswires

President-elect Donald Trump has proposed wide-ranging changes to the nation's tax system, which will affect virtually all Americans and their advisors. Estate planners in particular face a dramatic potential impact on their practices.

Potential for federal estate tax repeal

Trump has proposed a repeal of the federal estate tax. Republicans have long wanted to repeal the estate tax, and the continual increase in the estate tax exemption may have been a foreshadowing of the elimination of the tax. The referring to the estate tax as a "death tax" reflects the hatred many Americans - including, surprisingly, many not even affected by the tax - have had for what has become viewed as an unfair double tax.

The reality is that the estate tax affects very few taxpayers and raises insignificant federal revenue. A recent Forbes article noted: "In tax year 2015, just 4,918 estates paid $17 billion in estate taxes (less than 1% of federal revenue). More than a third was raised from the richest of the rich - the 266 estates valued at $50 million or more brought in $7.4 billion to the Treasury."

If the estate tax is repealed, several questions will need to be addressed, including the following: Might repeal be retroactively effective Jan. 1, 2017, or some other date? Or might the Republicans delay repeal until 2018 because of income tax changes that will impact the federal budget? Or might repeal not be immediate, but instead be phased in over a number of years?

If the estate tax is repealed, might the tax come back at some future time in some different iteration? It also remains uncertain what might replace the estate tax. Might there be a capital gains tax on death? Could carryover basis become a reality?

Another option might be to characterize inheritances as income. From an economic perspective, if a lottery winning is treated as income, is it really unreasonable to treat an inheritance in a similar manner? So, while permanent estate tax repeal may be more likely than ever before, much uncertainty remains and there are a host of issues that need to be addressed.

Gift tax repeal possible

Among the many uncertainties is whether the gift tax also will be repealed. Trump has proposed a repeal of the gift tax along with the repeal of the estate tax. But the gift tax has and could continue to serve other important tax purposes.

The gift tax is not just a backstop for the estate tax, but it ensures the integrity of the income tax. If the gift tax were repealed, a taxpayer (e.g., a parent) could shift income without tax cost to another (e.g., a child) who is in a lower tax bracket. The parent could simply gift the asset to be sold to the child to sell. Absent a gift tax cost, there might be no impediment (other than transfer costs) to making such a transfer. The child could then sell the asset, recognize a lower income tax than the parent, and then gift some portion or all of the proceeds back to the parent.

Would a repeal of the gift tax eliminate an impediment to asset protection planning for wealthier taxpayers? Shifting assets into irrevocable trusts to protect them from creditors is complicated by the need to avoid a gift tax. The repeal of the gift tax would permit asset protection planning unfettered by that limitation. Although it would also eliminate a primary non-asset protection motive used to justify such planning.

Carryover basis or capital gains tax on death?

When the estate tax was repealed for 2010, carryover basis took effect. There is no assurance, however, that carryover basis will be enacted if the estate tax is repealed, and it may be a question of cost. Some may think that a capital gains tax at death will be enacted in place of the estate tax. Indeed, that is what Trump has proposed for transfers at death in excess of $10 million. Trump's proposal may include additional exemptions from the capital gains tax on death for family businesses and farms.

The possibility of a capital gains tax on death should be carefully considered by those evaluating prior estate planning transfers, and transfers currently in process. Will shifting assets out of an estate into an irrevocable trust (even perhaps a grantor trust to preserve flexibility) avoid that capital gains tax on death? This could be vitally important to evaluating existing plans and current planning.

If a capital gains tax on death is provided for, how will taxpayers find tax basis data to determine the tax? Many practitioners expressed just such concerns in 2010 when a carryover basis regime temporarily existed.


Estate and gift tax planning, similar to tax planning in general, is a moving target. Tax rules are constantly changing and to be effective planners, we will need to keep our finger on the pulse of new developments. The issues discussed above will certainly be considered by the president and Congress. As planners, we will stay tuned and adjust our clients' estate plans accordingly.


Anthony G. Sandonato, CPA/ABV, CVA, Esq. is a partner at Mengel, Metzger, Barr and Company. He can be reached at 585-423-1860 or by e-mail at asandonato@mmb-co.com.

Published: Mon, Jan 30, 2017