The federal estate tax has long been a source of political controversy. The tax applies to the transfer of assets upon a person’s death, but there are a number of exemptions that effectively exclude all but a handful of estates from paying. No estate with a gross value of $5.45 million ($5.49 million as of January 1, 2017) is liable for the tax. Additionally, one spouse can leave an unlimited amount of property to the surviving spouse without owing any tax. While some states still impose their own estate tax, California does not.
Trump Expected to Undo Obama Rules Changes
In August, the U.S. Treasury Department proposed new regulations that it claimed would close “loopholes” in the estate tax. According to the White House, these regulations would make it more difficult for estates to restrict the use of certain assets in order to “discount” their value for tax purposes. Many business owners, in California and elsewhere, have spoken out against the proposed rules, arguing that they will raise their projected estate tax liability and force them to sell their businesses instead of leaving them to their children.
But the regulations themselves may soon be a moot point. President-elect Donald J. Trump, who takes office in January 2017, has promised to support repeal of the estate tax. Republican members of Congress have supported such a repeal for many years. South Dakota Sen. John Thune, a leading Republican, told Roll Call that “the odds are good that we can repeal the estate tax” as part of a “comprehensive tax reform” package developed by the next Congress.
Making Estate Taxes More Complicated?
The Trump administration’s tax plans, however, may not be as simple as you think. The president-elect has actually proposed replacing the current estate tax with a “capital gains tax on assets left to heirs above a $10 million threshold,” according to Forbes. The National Law Review noted this could be “more difficult to administer than an estate tax regime,” because estates and the Internal Revenue Service would still need to figure out the tax basis of certain assets. The Review noted it might actually make more sense for the Trump administration to keep the estate tax in place but reduce the actual rate from 40% to 20%, which would bring it in line with the “most prevalent capital gains tax rate.” It is also unclear how any proposed changes will affect the federal gift tax, which is tied to the estate tax.
One thing is for sure: The nation’s estate tax laws are once again in a state of flux. While the tax may only affect a small percentage of California estates, if you have questions or concerns about how it might impact your business or assets, you should speak with a qualified San Diego estate planning lawyer. Contact the Law Office of Scott C. Soady if you would like to schedule a consultation today.