Assuming you have not been living under a rock for the last two years you have heard of Donald J. Trump, now President Trump, speak about the need to repeal the so-called “Death tax”. In addition, you are likely aware that Speaker Paul Ryan has long been a proponent of tax reform generally and a repeal of the death tax specifically. Now President Trump, along with a republican controlled house and senate, have the opportunity to reform the tax code and end the death tax.
On January 24, 2017, H.R. 631 was introduced to the House of Representatives. H.R. 631 is one of the latest efforts to eliminate the Estate Tax, among other reforms. The proposed Bill seeks to eliminate the Estate tax in its entirety in addition to repealing the Generation-Skipping Transfer tax (“GST”). In 2017 the Estate Tax Exemption and the GST Exemption are both at $5,490,000.00. (The Generation-Skipping Transfer tax is generally imposed on transfers to those beneficiaries who are more than one generation younger than the person making the transfer (example: grandkids or younger generations).
While a prior bill (H.R. 1105) to repeal the Estate Tax did not make it beyond the House in 2015, H.R. 631 is being introduced under a Republican president with a Republican controlled House and Senate. Obviously, there is no certainty that this bill will pass in both houses of Congress. For instance, in the Senate there is the potential for a filibuster, however, the Senate may pass it as part of a budget reconciliation measure that would require a simple majority with the restriction that it would be for only 10 years. (Remember the Bush era tax cuts and their “sunset” in 2010?)
H.R. 631 continues the present Gift Tax, Gift Tax Exemption and Annual Exclusion, with a reduction of the Gift Tax top rate to 35% (from 40%). How cost-basis will be handled in the new proposed system is still unclear. The proposal President Trump made during the campaign, which was, “capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms.” What this means is still being evaluated, whether the $10 million is the assets and the gain or just the gain. This proposal is not included in the current H.R. 631 Bill.
While there is not definitive outcome at this time, it certainly appears that the Estate, Gift and Generation-skipping Transfer tax exemptions in place currently will not be decreased and there is a good likelihood that they may be increased or repealed entirely.
What does this mean for most individuals? Individuals should review their plans with competent professional advisors to consider the impact of these changes and to ensure their plans still make sense.