Well, well, well, what do you know. Congress once again might tinker with the estate tax.
This is something they are wont to do with new administrations and when certain legislators want to make a statement.
Given the recently failed “repeal and replace” of the Affordable Care Act and what appears to be President Trump’s next focus—income tax reform—it is hard to tell whether estate tax concerns will get sufficient attention for any legislative changes. Or whether sufficient votes could be mustered for any changes to the estate tax.
Remember, that in addition to the federal estate tax, there is also a federal generation skipping transfer tax and a federal gift tax. Connected to the estate tax is the concept of ‘basis step up’—meaning that inherited assets receive a step up in tax basis to fair market value at date of death. This means that unrealized appreciation up to the date of death escapes income tax upon sale of the asset.
Some estate tax revision proposals link a reduction or elimination of estate tax to a reduction or elimination of step up. This translates to: sure, my estate tax may be reduced/eliminated, but my heirs will have to pay more capital gains tax when they sell the inherited asset because their step up in basis was reduced/eliminated.
But here is what is in the hopper. The following summary is from the National Law Review.
H.R. 451: Known as the “Permanently Repeal the Estate Tax Act of 2017,” this bill is the shortest. It states simply that for “decedents dying after December 31, 2016, Chapter 11 of the Internal Revenue Code of 1986 is repealed.” This operates to repeal the estate tax, but to leave the gift tax and generation-skipping transfer tax in place.
H.R. 198: Called the “Death Tax Repeal Act of 2017,” this bill goes much further and repeals Subtitle B of the Internal Revenue Code, which includes estate, gift and generation-skipping transfer tax. The bill also states that it would be effective upon enactment, rather than retroactive.
H.R. 631 and S.B. 205: Both of these bills have multiple co-sponsors and each of them is known as (you guessed it) the “Death Tax Repeal Act of 2017.” These bills are somewhat longer and repeal the estate and generation-skipping transfer taxes, but retain the gift tax at a top rate of 35 percent. They also maintain the taxation of existing QDOTs for 10 years. Finally, each of these bills is effective upon enactment.
Regardless of whether any estate tax changes are made, it is always a good idea to review your estate plan with a Connecticut estate planning attorney every 3-5 years to accommodate any changes in your family or financial situation, or any change in the lives of your beneficiaries – for example: death, divorce, substance abuse…even lottery winnings!