By Jeffrey R. Wolfe, Vice President and Manager, Wealth Planning Strategies

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President Trump and Republican legislators recently submitted their “Unified Framework for Fixing Our Broken Tax Code.”  In it, they proposed to condense tax brackets, lower corporate tax rates, and generally, “make America great again.”  As with nearly every tax plan, this one is also designed to help provide tax relief to the middle class.

The outline submitted is light on details, but heavy on ideals.  The document is only 9 pages long.  One of those ideals, the one applicable to our ongoing Estate Planning Awareness Week, is to repeal “the death tax and generation-skipping tax.”  In fact, that’s the only sentence that addresses estate tax issues at all.  There is no mention of gift tax, etc.

Clearly, we are a long way from any tax laws being passed here, but it’s worth considering what could happen with this proposal.  There are generally three likely possibilities, and one unlikely possibility:

  1. Nothing happens on estate/gift/transfer tax
  2. It goes away, which will lead to lots of opportunities to move wealth around tax free
  3. Via “Budget Reconciliation”, some sort of plan is put together with a 10 year sunset
  4. There is some kind of compromise between current law and eliminating the estate tax (this is the unlikely one because our government doesn’t compromise anymore!)

From a planning perspective, Option 1 means the rules stay the same.  Option 2 means a whole new world of opportunities, which is a much deeper discussion than this blog will address.  I’ll skip Option 4 for discussion purposes because it’s the most unlikely.

The interesting option is Option 3.  This is what happened when President Bush passed tax reform in 2001.  Recall the estate tax increased the exclusion every year until 2010, when, for a year, it was abolished.  In 2011 the exclusion was to return to the $1 million mark, but President Obama and Congress reached a temporary agreement to create the current tax regime, which become permanent in 2013.  This type of temporary situation occurs under “Budget Reconciliation,” which for practical purposes means the tax plan can’t pay for itself within the 10 year timeframe, known as the “Byrd Rule.”

With that in mind, Reconciliation creates the most havoc.  The rules are set to change at some fixed point in time, but can also be changed at any time before that fixed point.  If you recall planning from 2009-2012, you can recall this chaos.  In other words, it’s hard to make long term plans on a law designed to sunset in 10 years.

My crystal ball has been broken for a long time, so I have no predictions on where this may go.  That said, the best you can do is to continue to keep an eye on the tax laws and prepare to be nimble should a change occur.  Work with your tax and legal advisors to address what options, risks and solutions may fit your situation best.  In the end, you can only prepare for what the rules are at the time, until they change them again!

Note: Benjamin F. Edwards & Co. is not a legal or tax advisor.