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.

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.

See also: Clinton vs. Trump: Americans render verdict on dueling tax plans

Planning implications

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.”

Single taxpayers might consider self-settled domestic asset protection trusts (DAPTs) in one of about 16 states that permit them. “This can permit you (as well as your spouse/partner and all descendants) to be a beneficiary of the trust,” he says. “In this way if Trump wins and is able to repeal the estate tax, you have not lost the ability to benefit from your assets and the plan will likely still be useful to protect assets from creditors, etc.”

Related: Clinton, Trump campaigns turn Social Security politics on its head

Need for flexibility

The key is to build structural flexibility into plans that can accommodate either outcome, Shenkman says. Naming a trust protector in a trust document who has the power to decant or merge the trust into a new trust is one way to retain flexibility. Similarly, naming a “loan director” in the trust who has the power to lend trust assets increases the range of possible future actions. He urges caution and the use of expert counsel in adopting these strategies, though, because some provisions will work only if the trust is created under the laws of particular states.

Still a role for life insurance

If Clinton wins and enacts her proposals, wealthy clients likely will require additional life insurance to restore liquidity and replace assets lost to estate taxes. But the coverage can continue to have a role in clients’ finances if Trump eliminates gift and estate taxes because of the product’s multiple benefits. These include income tax-free growth on permanent policies’ values; access to lifetime liquidity through policy loans and post-mortem liquidity; and coverage of long-term care expenses, among others. Shenkman recommends that advisors and clients view life policies as “all-weather tools” that will address these multiple needs. That approach ensures that the coverage will remain valuable regardless of possible changes in estate tax laws.

Also by this writer:

Fee-only RIAs still need to monitor fiduciary rule exposures

Getting (cautiously) creative with split-dollar life insurance

Blending life and LTC coverage for optimal results

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