Are Gifts a Good Idea?

Man Holding Boy on ShouldersWith the election of Donald Trump as President, and the Republicans maintaining majorities in both houses of Congress, many clients are beginning to ask if the estate tax is going away.  While we are not in the business of predicting the future, here is our current take on the situation:

One of Trump’s tax proposals was the repeal of the estate tax.  In addition, the House Republicans have a tax reform proposal (referred to as the “blueprint”) that currently calls for the repeal of the estate tax, along with other tax law changes.  Furthermore, Speaker of the House Paul Ryan recently mentioned that the blueprint will be taken up by Congress, in concert with President-elect Trump’s inauguration, at the beginning of the next session of Congress.  Based on the prevailing headwinds, it appears that the estate tax will be repealed sometime next year.  However, nothing is over until it’s over (just ask Cleveland Indian fans), and until estate tax repeal legislation has been passed into law, clients should continue to plan for the estate tax.  Therefore, if they are in the habit of making annual exclusion gifts (up to $14,000 per person) they should continue to do so.  Particularly if they haven’t already made the gifts for 2016.

In addition, the IRS came out with some proposed regulations in August, that would eliminate commonly used discounts for gifts of family business interests.  These regulations would become effective when finalized, and were originally going to be finalized next spring.  Based on the possible loss of discounting gifts to family members, may estate planners were advising clients to complete gifts before year end to insure they could take advantage of minority and marketability discounts.  However, since their release, these proposals have been met with strong objections from estate planners and many professional organizations (like the AICPA).  Recently the IRS has indicated it may back off the proposed regulations and ease some of the restrictions.  And now with the election of Trump and the Republican majorities, the entire proposal has come into question.  Our recommendation is if these family transfers have already been planned, clients should continue to go through with the transfers before year end to insure the appropriate discounts will be allowed.  Even if the estate tax is eventually repealed, clients will not hurt themselves by making transfers now, and if the estate tax is not repealed before they die, they will have protected themselves and their heirs.  However, it should be noted, we are only making this recommendation if the client is utilizing their lifetime credit when making the transfers (i.e. not paying any gift tax with the transfers).  We do not recommend clients make transfers that would require paying gift taxes, as that money will not be refunded if the estate and gift taxes are eventually repealed.

In summary, our advice to clients is – stay the course.  Continue with transfers already in the works, but hold off on new large scale revisions to your estate plan until we know the future of the estate tax.

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