Estate planning - 2017 and beyond

John N. Hamling, BridgeTower Media Newswires

My original article for this week was to update readers on the DoL Fiduciary Rule that was set to be implemented in April of this year. However, with the daily changes occurring regarding this hot topic, I felt that anything I wrote would probably be outdated and more than likely incorrect. Therefore, I switched to another topic, estate planning, even though it too is subject to radical changes. I’ll highlight some of those possible changes at the end of this article.

The IRS released the 2017 estate tax information late last year. The estate, gift and generation skipping trust tax exclusion is now $5.49 million (up from $5.45 million in 2016). This exemption amount is indexed to inflation every year. What this means is that under the new exclusion amount, approximately 99% of all estates will not owe any federal gift or estate tax.

A popular feature of current estate planning used by trust and estates attorneys is the idea of portability of married couples’ estates. What this means is that a married couple may combine their estate tax exemptions, currently $5.49 million per spouse, thereby allowing married couples to either give away or leave nearly $11 million in combined assets.

Portability allows a surviving spouse to use whatever portion of the individual gift or estate tax exemption was not used by the first spouse to die. Since property left to a spouse is tax-free, the first spouse can leave their assets to the surviving spouse without using any of their exemption, leaving their entire exemption for the survivor to use.

For example, a survivor inherits $5 million from their spouse. By the time the surviving spouse dies, they have $10 million to leave to their children. There would be no estate tax due on this inheritance even though the exemption amount is only $5.49 million because they can use the first spouse’s exemption as well.

A short history on portability of estate assets: The portability feature was first introduced into law in 2010 for the tax years 2011 and 2012. Then on Jan. 2, 2013, President Obama signed the American Tax Relief Act (ATRA), thereby making the portability law permanent.

The gift tax annual exclusion remains unchanged at $14,000 per gift. This means that a person may gift up to $14,000 per person to as many people as they want. Married couples may jointly gift up to $28,000, or double the amount, to as many and whoever they want

The Future of Estate Planning

In a recent article titled “The Future of Estate Planning and Potential Repeal Under President Trump,” it states: “Recently both President Trump and the Republicans have called for a repeal of Federal estate taxes, and with the Republicans’ clean sweep in Washington, all eyes are on potential legislation to eliminate the estate and gift tax in 2017.”

To me, that means that, realistically, total repeal is by no means certain, at least not permanent repeal. Why? The article goes on to say: “The lack of 60 Republican votes in the Senate means legislation to totally repeal the estate could be filibustered, and while estate tax repeal could be passed as budget reconciliation legislation with a simple majority, that’s only possible if it includes another infamous 10-year sunset provision thanks to the so-called Byrd rule.”

So, as of now, the world of estate planning has a lot of uncertainty about it. As the article states at the end: “It ultimately means that many popular estate planning strategies will remain in place, at least for now.”

But the most likely outcome may be that a substantial amount of estate planning slows down to a halt for the next several months, until it becomes clearer whether or how much focus, if any, the new administration will actually take regarding estate tax repeal. Stay tuned!


John N. Hamling is a Vice President at Karpus Investment Management, a local independent, registered investment advisor managing assets for individuals, corporations, nonprofits and trustees. Offices are located at 183 Sully’s Trail, Pittsford, NY 14534; phone (585) 586-4680.