Early in 2017, Kristi Noem introduced the Death Tax Repeal Act of 2017, or H.R. 631, into the U.S. House of Representatives to totally repeal the federal estate tax. John Thume introduced S. 205 to repeal the generation-skipping tax (GSTT).
Neither of these bills repeal the lifetime federal gift tax, but keep the exemption of $5.49 million and the maximum tax rate of 35%.
How do the estate and GSTT taxes work now?
Not surprisingly, this Congress is in a position, and is already acting, it enact massive changes to how the American economy and society works. These tax legislations could have a significant impact on families with large or small estates. As a review, here is what these two taxes are:
- Estate Tax:
Often called the “death tax,” the estate tax is on the estate of deceased individuals worth more than $5.49 million.
- Generation-Skipping Transfer Tax (GSTT):
Transfers that skip a generation (i.e. gifts that go directly to grandchildren or great-grandchildren) or go to people 37.5 years younger than the gift-giver and total more than $5.49 million are subject to the GSTT.
Because both bills keep the life-time gift tax exemption (only gifts given over a lifetime and totaling more than $5.49 million will be taxed), some life-time strategies may become less desirable or needed. However, a repeal of the estate and GSTT taxes will give you greater flexibility to protect assets from creditors, divorce, and other negative consequences and provide more comprehensive and individualized planning that does not have to account for estate taxes.
Of course, no one yet knows if these proposed laws will be signed into law by President Trump, but it is important to understand that these possibilities do exist and to plan proactively if the situation requires it.
Stay in touch to keep your estate plan current
Now is a time of real and potential change: comprehensive national tax reform and other changes appear possible, some of which may impact your estate plan. It is important to keep in touch with your estate planning attorney so your estate plan is up-to-date and compliant with any recent legal changes. Any personal life changes are also reasons to update your estate plan.
Change can happen at any time, so stay alert or call and ask any questions you have.