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December 09, 2016 at 08:22 AM
Adrienne Penta says that during the current interregnum before Donald Trump is sworn in as president, “there’s an unprecedented level of uncertainty on tax reform.” So what is the Brown Brothers Harriman tax and estate planning expert telling clients? “Take a deep breath and stay calm; don’t undo what we’ve done” in your client’s financial plan, she advises.
While joking that her “crystal ball is in the shop,” Penta said in an early December interview that it’s “not a foregone conclusion” that the federal estate tax, for instance, will be permanently repealed during a Trump administration, despite his explicit campaign promise to do so and a Congress controlled by Republicans.
Trump’s Contract With the American Voter promises “massive tax reduction and simplification,” though Penta cites an analysis by the Tax Policy Center projecting that Trump’s overall tax plan would cut federal revenues by $6.2 trillion over the next decade, and unless “accompanied by very large spending cuts, it could increase the national debt by nearly 80%” of GDP by 2036.
While campaigning, Trump first promised in an interview with The Washington Post to “get rid of the $19 trillion” national debt “fairly quickly,” perhaps within 8 to 10 years. Later in his campaign, however, Trump said that while eliminating the national debt is important and “you could pay off a percentage” of the debt in that time, he told Fortune that “the most important thing is to make sure the economy stays strong.”
So why isn’t a permanent estate tax repeal likely? For one thing, Penta, executive director of the Center for Women & Wealth at Brown Brothers Harriman, says that full-blown repeal would require a supermajority in the Senate, recalling that “in 2006, George Bush couldn’t get the permanent repeal.” However, Boston-based Penta believes a temporary repeal could be achieved, “for some period less than 10 years.” So for planning purposes, such a repeal would “only be relevant if you plan to die in the next 10 years,” she said.
Of course, when it comes to estate planning (and financial planning overall), Penta pointed out that while “we’re always dealing with a level of uncertainty” since “we don’t know when they [clients] are going to die,” right now “there’s much less information available than we’ve had with any president-elect.”
One of the unanswered questions from the Trump camp: Considering the amount of revenue raised for the Treasury from the federal estate tax, “what he would replace the estate tax with? What does he intend?”
