The Estate Tax and “Permanency”

Since January 1, 2013, estate planners have been able to advise clients on estate and tax planning issues with greater certainty because certain key aspects of the  inter-related gift, estate and generation skipping taxes were viewed as “permanent”.   As of that date,  the $5,000,000 exemption (adjusted for inflation) for the estate, gift and the generation skipping tax, the 40% maximum estate tax rate, and the marital portability of the estate and generation skipping exemptions were touted as permanent. The uncertainty that had afflicted estate planners in 2011 and 2012 seemed solved.

It’s true that there have been no major changes to the estate tax since January 1, 2013.  But does that mean the current structure of the law is “permanent”? Hardly.

For example, President Obama’s proposed 2015 budget called for a return to 2009 rates and exemptions, which would have reduced the exemptions to $3,500,000 and $1,000,000, respectively for the estate tax and the generation skipping tax, and re-imposed a top rate of 45% for the estate tax.

More pertinently, if the estate tax structure is permanent, someone should inform the 2016 presidential candidates.  In reverse alphabetical order:

Donald Trump plans on doing away with the estate tax (as well as corporate income tax).  He also advocates a 20% tariff on all imported goods, which is either innovative or 90 years behind the times depending on your perspective.

Bernie Sanders wants to reinstate the exemption at $3,500,000.00.  He will raise the maximum rate from its current 40% to 55% (with an additional surtax of 10% on billionaires).

Marco Rubio has recently signed the Family Business Coalition’s “Death Tax Repeal Pledge,” which will require him to support the repeal of the estate tax once elected.

Rand Paul’s website is reported to have indicated that he would repeal the estate tax.  This plank has apparently been removed from the website however.

Ted Cruz’s  website has nothing about the estate tax.  However, he has a track record on the issue.  In 2013 (post “permanency”) he co-sponsored legislation to repeal the estate and generation skipping taxes and to provide for a $5,000,000.00 exemption for the gift tax, which he would then tax at a maximum of 35%.

Hillary Clinton has in the past voiced support for freezing the exemptions at 2009 levels ($3,500,000.00 per person and $7,000,000.00 per couple).

The planning point is that for those of substantial wealth there is no “permanently” viable estate plan.  In the years to come, it may be that many U.S. taxpayers will need more planning or it may be that all U.S. citizens will need no planning.  Vigilance is important.  No one expects Bernie Sanders to be the next president, but even President Obama’s proposed legislation (which was much the same as Sanders’ current proposal) would have increased the number of federally taxable estates by 50% according to some estimates.

Congress and the President cannot agree on much of anything at the moment, and deadlock favors the status quo.  There is no reason to assume that the deadlock is permanent.

– Rod Fluck

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