Estate Tax Reforms Possible
The elimination of the estate tax would not have a practical impact on the vast majority of people. Only a fraction of a percent of the wealthiest people in America own enough assets to potentially face an estate tax when they pass away. For that small percentage, however, the elimination of the estate tax would be significant because the current tax rate on the value of an estate exceeding the exemption is 40%.
Two of the leading tax-reform proposals also advocate for the elimination of the step-up in basis on property owned at death. This change would have much more far-reaching implications than the elimination of the estate tax. To illustrate, under the current tax system, if an individual purchases a property for $100,000 that has appreciated to $400,000 at the time of their death, then that individual’s heirs can inherit that property with the tax basis at its current fair market value. If the heirs later sold that property for $400,000, they would not be liable for any capital gains tax. If the step-up in basis were eliminated, then the estate or heirs would potentially be liable for capital gains on any appreciated property within the estate (some proposals say even if those gains are not realized through a subsequent sale of the property).
On top of the uncertainty regarding the future of the estate tax, there’s a question of long upcoming tax reforms may last. Any extensive tax reform, especially reform that disproportionately favors the most affluent, is likely to only pass through reconciliation, which means that the changes would be time-limited and would have to sunset within 10 years, if not repealed sooner. Our office will be paying close attention to any new developments on the tax front to provide the most effective planning advice we can.
Disclaimer: All materials have been prepared for general information purposes so that can learn more about our firm and services. The information presented above is not legal advice and is not to be acted on as such. While we strive to present accurate information at the time of writing, it may not be current and is subject to change without notice.