With just under two months until Election Day 2016, it’s worth considering how each candidate’s proposals could affect your clients’ estate plans.
Statistically, Hillary Clinton has the edge. On Sept. 12, The New York Times rated the odds of her election at 80 percent versus 20 percent for Trump, although the polls are calling it a tighter race.
It’s also impossible to predict at this stage whether either candidate would get his or her tax proposals enacted.
The risk in ignoring their plans is that clients who decide to wait could be curtailing or eliminating planning opportunities.
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There’s another factor to consider: The candidates’ initial outlines of their tax plans couldn’t be more different, creating an either-or scenario. Trump has proposed eliminating estate and gift taxes. In contrast, Clinton would reduce the taxable-estate threshold to $3.5 million for individuals and $7 million for couples. She would also increase the top estate tax rate to 45 percent, reduce the gift tax exemption to $1 million and eliminate the inflation adjustment on taxable exemptions.
Martin M. Shenkman, CPA, JD, with Shenkman Law in Fort Lee, New Jersey, recommends that advisors review plans with their clients in light of the candidates’ either-or proposals. Under Trump’s proposal, for example, the tax-savings value of some plans and structures, such as irrevocable trusts and grantor retained annuity trusts (GRATS), will diminish. If Clinton wins and the Congressional election results increase the likelihood of her proposals’ enactment, advisors and clients could be forced into what Shenkman recalls as a “mad rush” similar to that experienced in 2012.
There’s another important potential change on the horizon, as well, he cautions: The IRS has proposed new regulations that will virtually eliminate valuation discounts. With both an election and a revision of valuation discounts coming up, clients who are revisiting their estate plans should evaluate both issues, he suggests.
Should Clinton win, clients should consider using up their $5.45 million exemptions now because that limit would drop to $1 million. If Trump wins and repeals the estate tax, only the very wealthy should consider transferring assets that benefit children and later descendants. An alternative to a dynasty trust, for example, could be a spousal lifetime access trust. “This can have all the benefits of a dynasty trust, such as keeping assets out of the estate tax system forever, but also includes a spouse/partner as beneficiary so that your spouse/partner can access and benefit from the assets in the trust,” he explains. “If your spouse/partner can have the trust buy a vacation home, you can use it as well, thereby indirectly benefiting from the assets you gave away.”