In 2017, Donald Trump will be sworn in as the 45th President of the United States. And with his presidency is certain to come major changes that could affect your estate planning. Trump, for example, made it very clear during his presidential campaign that he would repeal the so-called "death tax." Trump also talked about making other changes that could, for example, change the way capital gains are taxed. And because the Republican majority in the Senate also tend to favor these actions, it's very possible that many of these changes could actually occur. So what should you do? Well, if you already have a trust in place, experts in asset protection advise staying on top of the proposed changes. Then, if necessary, you can work with your financial planner on modifying your estate plan.
Possible Death for the Estate Tax
One of the first things Trump has declared he wants to change when he takes over the presidency is the death -- or estate -- tax. This is a tax levied on the money and assets that you pass on to your heirs that exceed a specified dollar amount. Currently that amount is $5.45 million. So if you, say, have a business, assets, and a residence that total more than that amount, your heirs will be taxed at a 40 percent rate for anything above the $5.45 million. Your heirs may also have to pay state estate taxes, as well.
Changes in Capital Gains
Trump is also considering changing the capitals gains tax. Today, when you die, your heirs would pay taxes on the amount that your assets are worth currently. For example, if you leave your kids shares of a stock that is worth $30 today, your heirs would inherit them at that price, even if you had bought them for say, $5. So, currently, if your heirs decide to sell the stocks, they would incur no capital gains taxes. Trump's proposed plan would change things so that your heirs would inherit the stocks at the price you originally paid for them. So their worth would be the $5 a share. With this plan, your heirs would only have to pay taxes on the "stepped up" amount if they were to sell them.
Addressing the Present and the Future
According to Kiplinger, your best bet for dealing with estate planning during this period when tax laws could be in a state of fluctuation is to create two separate plans. One of the plans should be created in accordance with the current tax laws. But then you should also draft another plan that would follow the tax laws at the time of your death -- assuming that they may differ. Why? Because your estate plan will be distributed based upon the laws that are in effect at the time you pass away -- not on the way the tax laws were at the time you created it. So if you want to ensure that your assets are distributed in the manner you want, you'll need to be proactive and stay on top of your estate planning.
And what should you do if you don't have already have a plan? Should you wait until things become more settled? Financial planners say absolutely not. It is very important that you have an estate plan in place, even during these turbulent times. The unexpected deaths of several relatively "young" celebrities -- think Prince, Carrie Fisher and Alan Thicke -- are a reminder that the Grim Reaper could call at any time. And in Prince's case, he passed away without a will or a trust, leaving those close to him battling in the courts for what they believe should be their fair share of the estate. So if you would prefer that most of your financial assets remain with your loved ones instead of with lawyers, consult with a financial planner from a firm like Family Focus Financial Group as soon as possible.