We are about two months' shy of electing our nation's next president. While there's no way to know for certain who will win and whether the winner's tax proposals will be enacted, we do recommend that all advisors talk to clients about Hillary Clinton and Donald Trump's individual approaches to the federal gift and estate tax.

Financial Planning published a great comparison between the two candidates and their proposals. We've included highlights below.

More Tax

Clinton's plan includes reducing the gift tax exemption to $1 million from the current level of $5.45 million. She also proposes increasing the federal estate tax assessment rate to 45 percent from the current 40 percent and reducing the estate tax exemption per individual to $3.5 million from the current $5.45 million.

Her plan includes eliminating the estate tax inflation adjustment, which means taxpayers would no longer be able to assume that some or all of their net worth would be offset by an inflation increase in the exemption. It's expected that Clinton's proposals will include President Obama's past proposals to restrict grantor retained annuity trusts (GRAT), note sale transactions and more, according to the Financial Planning article. 

No Tax

Trump's plan embraces abolishing the estate and gift tax. 

We agree with Financial Planning's view that if your clients created irrevocable trusts, GRATs, or LLCs and Trump's tax proposal is enacted, then the expected estate tax benefits of such strategies would likely not come to light.

However, these planning techniques definitely provide important asset protection, divorce protection, and other benefits besides estate tax savings.

It is vital that any planning be structured to provide as much flexibility and benefits for your client as possible. We encourage advisors to always stress the non-tax goals of a solidly crafted estate plan to clients so that if the estate tax is repealed, they can still observe the benefits of having created a plan.

2012 All Over Again?

According to the article, if Clinton wins the election, it's possible that advisors could see a repeat of the 2012 estate planning rush. At the time, many people anticipated the estate and gift tax exemption would drop and that their assets would be at risk. They hurried to set up trusts for children or grandchildren and ended up cutting themselves and their spouses off from having access to their own resources. 

Fearing Clinton's proposals, your clients might be scrambling to put together new planning before year's end to take advantage of the current $5.45 million exemption before it drops to $3.5 million. These same clients may also be searching for solutions to get around any proposed restrictions on GRATs and limitations on other planning strategies that traditionally minimized the estate tax.

If you are looking to make similar planning changes before the end of the year, don't forget the importance of including protections for yourself and your spouse so that you may continue to have access to your assets. 

Talk Now

No matter who wins the election, there are considerations to be made in your plan.

With the future so uncertain, it's important to stress flexibility in creating or changing a plan. If the estate tax is repealed, know that your plan will still serve a purpose.

It's critical to invite clients to have these discussions now with an experienced estate planning attorney. Having a wait-and-see attitude about the election and putting off planning is absolutely the wrong strategy.

If you have a specific case or a question, please don't hesitate to call our office at 919-443-3035.

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning
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