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What Would the Repeal of the Federal Estate Tax Mean for Estate Planning?

In Estate Planning by Joe Frabizzio

Throughout his campaign, President-Elect Donald J. Trump promised to repeal the federal estate tax. It’s a stance that has also been popular among congressional Republicans in recent years.

With Republicans winning major victories in Washington, D.C., in the 2016 elections and having control over the Senate, House of Representatives and the White House, they now have the power to eliminate estate and gift taxes through legislation, if they wish to do so.

An elimination of these taxes would change the way many Americans approach estate planning. What impact could these changes have on the future of estate planning and the strategies that high-wealth individuals often apply?

Lack of certainty important to consider

First, it’s important to remember that a complete repeal of the current laws regulating gift and estate tax is not a certainty. Although Republicans do have a majority in the Senate, they do not have a filibuster-proof supermajority of 60 votes. Senate Democrats could delay or even permanently block immediate changes to the law.

There are situations in which a simple majority could pass a repeal of the estate tax law, but only if there is a 10-year provision under what’s known as the “Byrd Rule.”

Even if Congress repeals the federal estate tax, it doesn’t mean the gift tax will go away with it. Lawmakers could also replace the estate tax with something else. For example, Congress could enact a law requiring individuals to report capital gains upon the death of a loved one, or to renew “carryover cost basis” laws that temporarily went into effect in 2010.

Depending on the way discussions and negotiations go on the congressional floor, it’s impossible to say exactly how these laws will look moving forward. But it is likely that a simple repeal with no new taxes to replace it would be very unlikely.

This is one of the reasons estate planning attorneys are adopting a “wait and see” approach to what happens with estate and gift taxes. If repeals do happen, the entire focus of estate planning could suddenly shift from tax planning to asset protection planning. If a repeal with a 10-year “sunset provision” goes into effect, many more people might choose to shift their assets out of their estates just in case a permanent repeal occurs later on.

Expect little change in the short term

For now, the best strategy is to keep using the same methods you have been using to plan your estate—at least for now. Some might put a hold on their estate planning efforts altogether for the first six months of the new administration until they can get a sense of what Republicans opt to do with the law. In any case, your best bet is to stay in close communication with your estate planning lawyer, who will remain up-to-date on all the potential changes in the law.

Contact our experienced Pennsylvania estate planning attorney

You should consult with experienced Pennsylvania estate planning trust attorney Joe Frabizzio to determine the best and most cost-effective strategy for your family. Proper estate planning could help your family save tens of thousands of dollars in estate taxes and probate costs.

Call us for a free consultation to learn more: (610) 667-2988

We assist clients living on the Main Line in Montgomery County, Pennsylvania, including cities such as King of Prussia, Wayne, RadnorConshohocken, Norristown, and other surrounding cities.