A new Presidential administration can bring sweeping changes in the tax codes, new rules for how wealth is taxed, and a litany of other legal and regulatory changes. As a result of Donald Trump’s electoral victory on November 8th combined with Republican majorities in the House and Senate, we expect that there will be significant changes starting on January 20, 2017, when Mr. Trump takes office.
Your clients may be feeling some uncertainty right now about their financial future. As their trusted advisor, they may look to you for ways to minimize risk and exploit opportunities. We are also monitoring developments from an estate planning and taxation perspective, and will be sharing updates and information with you. Following is a quick review of what we know so far.
Donald Trump’s Proposals
Donald Trump has proposed across-the-board reforms in the tax codes, and while he promises to close some loopholes, the general trajectory of his proposals is toward lowering taxes overall.
Some pertinent points of his federal tax plan are:
Lowering income tax rates across the board, including an increase to the standard deduction;
Reducing the number of individual income tax brackets from 7 to 3, with a maximum tax rate of 33 percent (down from 39.6% today);
Reducing the business tax rate from 35 percent to 15 percent; and
Eliminating the estate tax.
Remember that any change to the tax laws requires Congressional approval and will not happen automatically. In spite of Republicans being in control of the Presidency and Congress, there will still be negotiation and compromise reflected in the “final” tax law that comes out of Washington. And even final rules are only “final” until the government decides to change them again.
Recommendations, assuming President-elect Trump’s agenda is put into law:
Be cautiously optimistic. The elimination of the federal estate tax in particular is likely to be welcome news for your higher net worth clients, but this proposal may be subject to opposition or compromise in Congress. This compromise could range from a “sunset” provision to gradual phase-in or something else entirely. We’ll have to wait and see. We cannot assume the “death tax” will automatically be gone on Day 1 of the Trump Presidency.
Remember that an estate plan is broader than federal estate tax. Although estate taxes have long been a focus in many conversations about estate planning, the real reasons for estate planning remain present, no matter who is in the White House and Congress. They include:
Incapacity planning for medical or financial decisions;
Guardianship for minor children;
Directing your financial legacy to your intended beneficiaries;
Asset protection for you and your beneficiaries;
Income tax and capital gains considerations;
Washington State estate taxes; and more.
Stay tuned for updates. As new laws and rules being to emerge, we will provide updates to help make sure you and your clients are aware of possible impacts to the estate planning process.
If you have any questions or concerns, please do not hesitate to contact us.
Wishing you a safe and happy holiday season!