Estate Taxes, Trump and the “C” Word

What do Republicans despise more than a drum circle of barefoot hippies living on public benefits?  Probably nothing, but the estate tax draws substantial if not equal Republican disdain. Republicans have been calling for the repeal of the estate tax since it was enacted in 1916.  With a Republican president and congress, the “death tax” might finally die. But, as I expect we will be saying a lot over the next four years, Trump is taking a unique approach.

Today the estate and gift tax exemption is $5.49 million per individual. Translation: an individual can leave $5.49 million at death to whomever and avoid all federal estate and gift tax. With exemption portability and the marital deduction, couples can shield $10.98 million of net assets (assets less liabilities) from federal estate and gift taxes. Any excess property over this threshold that is owned by the decedent at death is taxed at 40%.

Who pays the estate tax and how much do they pay? In 2015, 4,918 estates paid roughly $17 billion in estate taxes, which accounted for less than 1% of federal tax revenue.[1] There were 266 estates valued at $50 million or more, which brought the Treasury $7.4 billion.

So what does Trump plan to do?  Essentially, Trump proposes to eliminate the estate tax, and replace it with a new tax on capital gain property that exceeds $10 million in value. Why would the affluent care? Because capital gain rates currently top out at 20%, which is considerably less than the 40% estate tax. In addition, Trump’s proposed capital gains-death tax would spare farmers and small businesses.

Why doesn’t the GOP, which controls both the white house and congress, simply eliminate all transfer taxes imposed at death? Blame it on the “C” word – compromise. Republicans do not appear to have the 60 votes required to break a Democratic filibuster in the Senate.

Without the magic 60, the legislation is going nowhere.

— By Michael S. Cooper, Barnes Law

Michael Cooper is an associate attorney with Barnes Law, and is licensed to practice law in California.

The opinions expressed are those of the author and do not necessarily reflect the views of the firm, its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] https://www.irs.gov/uac/soi-tax-stats-estate-tax-statistics-filing-year-table-1