Hillary versus Trump - Comparing Estate Tax Plans
The wrap-up of back-to-back political conventions has brought to light many major issues facing our country both domestically and abroad. But regardless of who our next president will be, the election in November is going to bring changes to our tax system.
In 2016, the federal estate and gift tax exemption amount is $5.45 million (effectively $10.9 million for a married couple). That amount is tied to inflation, so it will continue to increase each year under our current system. The top estate tax rate is 40%. Without any tax planning, this means that the estate of a single individual with a gross value of $10 million would pay approximately $1.82 million in estate taxes.
Both presidential candidates have proposed significant changes to this system that, regardless of who wins, are likely to impact your estate. Here is a brief rundown of each candidate’s current proposed plan:
Hillary Clinton’s Estate Tax Plan
If elected, Hillary Clinton’s proposed plan is to return estate taxes to the 2009 levels. This would decrease the federal estate tax exemption to $3.5 million (effectively $7 million for a married couple), reduce the gift tax exemption to $1 million, and increase the estate tax rate to 45%. The proposal would eliminate the tie to inflation that increases the exemption amount each year, meaning that $3.5 million would remain the exemption amount for the foreseeable future. Without any tax planning, this means that the estate of a single individual with a gross value of $10 million would pay approximately $2.93 million in estate taxes, which is a difference of more than a million dollars from 2016 levels.
If you have not engaged in tax planning, these changes could drastically increase your estate tax liability. There are many tools available to you, including irrevocable life insurance trusts, grantor retained annuity trusts, and more complex asset protection trusts that can shelter your estate from federal estate taxes. However, these tools are only available during your life while you have capacity to make financial decisions.
If Hillary Clinton’s tax plan is enacted, an ounce of prevention will be worth far more than a pound of cure. Don’t wait to develop your estate plan and incorporate appropriate tax-saving tools.
Donald Trump’s Estate Tax Plan
If elected, Donald Trump has proposed to eliminate all federal estate tax. For individuals with assets in excess of the current exemption amount, this means your potential estate tax liability would be eliminated.
If you already engaged in tax planning to protect your assets from federal estate taxes, you may want to reconsider your overall estate plan and think about how to reduce your potential income tax and capital gains tax liabilities instead.
What does this mean for you?
Regardless of the presidential election, Oregon and Washington residents still need to take steps to avoid state estate taxes. Changes in federal estate taxes will not change Oregon or Washington’s estate tax systems. In Oregon, each person has a $1 million exemption amount with an estate tax rate of 10% to 16%. Washington’s exemption amount is $2 million with an estate tax rate of 10% to 20%.
Estate planning is not just about taxes. Making informed and thoughtful choices about what will happen to your estate and who will be in charge of its administration is, and will continue to be, critical to accomplishing your goals regardless of the estate tax environment. However, to the extent one of your goals is to save on federal estate taxes, pay attention to this issue as it evolves and be sure to consult with your estate planning attorney about how it will affect you.
In 2016, the federal estate and gift tax exemption amount is $5.45 million (effectively $10.9 million for a married couple). That amount is tied to inflation, so it will continue to increase each year under our current system. The top estate tax rate is 40%. Without any tax planning, this means that the estate of a single individual with a gross value of $10 million would pay approximately $1.82 million in estate taxes.
Both presidential candidates have proposed significant changes to this system that, regardless of who wins, are likely to impact your estate. Here is a brief rundown of each candidate’s current proposed plan:
Hillary Clinton’s Estate Tax Plan
If elected, Hillary Clinton’s proposed plan is to return estate taxes to the 2009 levels. This would decrease the federal estate tax exemption to $3.5 million (effectively $7 million for a married couple), reduce the gift tax exemption to $1 million, and increase the estate tax rate to 45%. The proposal would eliminate the tie to inflation that increases the exemption amount each year, meaning that $3.5 million would remain the exemption amount for the foreseeable future. Without any tax planning, this means that the estate of a single individual with a gross value of $10 million would pay approximately $2.93 million in estate taxes, which is a difference of more than a million dollars from 2016 levels.
If you have not engaged in tax planning, these changes could drastically increase your estate tax liability. There are many tools available to you, including irrevocable life insurance trusts, grantor retained annuity trusts, and more complex asset protection trusts that can shelter your estate from federal estate taxes. However, these tools are only available during your life while you have capacity to make financial decisions.
If Hillary Clinton’s tax plan is enacted, an ounce of prevention will be worth far more than a pound of cure. Don’t wait to develop your estate plan and incorporate appropriate tax-saving tools.
Donald Trump’s Estate Tax Plan
If elected, Donald Trump has proposed to eliminate all federal estate tax. For individuals with assets in excess of the current exemption amount, this means your potential estate tax liability would be eliminated.
If you already engaged in tax planning to protect your assets from federal estate taxes, you may want to reconsider your overall estate plan and think about how to reduce your potential income tax and capital gains tax liabilities instead.
What does this mean for you?
Regardless of the presidential election, Oregon and Washington residents still need to take steps to avoid state estate taxes. Changes in federal estate taxes will not change Oregon or Washington’s estate tax systems. In Oregon, each person has a $1 million exemption amount with an estate tax rate of 10% to 16%. Washington’s exemption amount is $2 million with an estate tax rate of 10% to 20%.
Estate planning is not just about taxes. Making informed and thoughtful choices about what will happen to your estate and who will be in charge of its administration is, and will continue to be, critical to accomplishing your goals regardless of the estate tax environment. However, to the extent one of your goals is to save on federal estate taxes, pay attention to this issue as it evolves and be sure to consult with your estate planning attorney about how it will affect you.