They say that only death and taxes cannot be avoided in life. But if you are among the wealthy or personally own a business worth more than $5.45 million, you may be subject to being taxed even upon your death. The “death tax” is quite a controversial subject, with each presidential candidate weighing in on opposite sides of the table.
Donald Trump argues that American workers have been taxed all their lives and shouldn’t have to be taxed once they die, but few “workers” have estates worth $5.45 million dollars. Hillary Clinton wants to cut the exemption amount from $5.45 million to $3.5 million, thereby increasing the number of families who would be impacted by this tax.
This so-called estate tax, or death tax, is very different from income tax. Since income taxes are paid based on earnings, opponents of the estate tax argue that this tax is truly an example of double taxation, since funds in the estate have already been taxed. Hillary Clinton has vowed to hike this tax if she is elected to office. Trump has vowed to repeal the estate tax entirely. What does this all mean? At the present time, estates worth less than $5.45 million are exempt from the federal estate tax. For a married couple the figure rises to $10.9 million. Estates worth more than that figure are subject to a 40% tax.
Now of course, with no advance estate planning the consequences of the estate tax can be devastating. Family held businesses can be forced to sell to pay taxes. The personal wealth of the very rich (think Donald Trump) can be enormously impacted.
Hillary argues that the funds from the estate tax are important and necessary for the functioning of the American government, “from child care to roads, bridges and other infrastructure”.
Donald argues that it’s unfair for the wealthy to be subjected to double taxation. Both arguments make sense, so what does it all mean for you and your Estate Plan?
Were Trump to become president and successfully repeal the estate tax, the need for complex estate planning would be obliviated - for now. Many estate planning attorneys specialize in designing plans that minimize estate taxes, often called “tax planning.” Certain celebrities failed to take advantage of these tools - including James Gandolfini, and most recently, Prince. Nevertheless, you’d still want to place your assets in a trust to avoid probate and familial disharmony should something happen to you. However, your estate plan will likely cost you less money, which is a definite perk.
Were Hillary to become President and successfully pass her estate tax plan - lowering the estate tax limit to $3.5 million for individuals and $7 million for couples - you may find yourself needing to buff up your estate plan. And of course, if you don’t have a trust at all - it may be time to get one. Essentially, Hillary’s plan will mean more time and money spent with trust attorneys for a larger group of people. It will also, of course, mean more taxes.
Even if one of them were to successfully pass estate tax changes, it’s possible the law will be changed again in the next four to five years.
So what’s the most advisable course of action for most of us?
If you don’t have an estate plan, and you’re not near the asset line of $3.5 million (or $7 million for couples), I advise starting a relationship with an attorney who specializes in trust and estate planning. Find one who charges a flat rate and get an initial trust in place. If your assets grow substantially in the future, or laws change drastically, you’ll have someone you trust to make the necessary updates and changes for you.
If you’re already above the bright red lines of the estate tax limit, I suggest getting an initial trust in place and holding off for a few months before you do a more complex plan.
If you already have a plan in place, double check it as laws change to make sure you and your assets are still protected.
And of course, vote!
For questions about estate planning or trusts, contact my Walnut Creek Estate Planning Law office at 925-322-1795 for your consultation.