Yes, Estate Planning Is Still Important Under Donald Trump Presidency

Estate planning must continue despite Trump’s win, though estate plans will change under his administration. While Trump’s victory brings changes for estate plans, estate planners cannot ignore it altogether… [+].

With President Trump’s election and Republican control of both houses of congress likely ensuring no harsher estate tax increases in four years, it seems unlikely that harsher estate tax will be levied against wealthy Americans over that time period. Does that mean estate planning is no longer relevant? No; but estate tax planning in 2017 differs substantially from when this article was written; many estate planners used “use your exemption before it gets reduced 2026” as their mantra; that will no longer suffice in today’s environment but ignoring planning would likely prove more imprudent than planning.

President Trump may complete what Republicans have long desired – the repeal of estate taxes altogether – but regardless of this possibility, many other benefits of planning remain so don’t abandon planning altogether!

Really Wealthy Folks
Planning is of vital importance for individuals with net worths of $50 million and greater, regardless of what happens with the exemption amount (in January 2025 it will reach $13,990,000) because at some level of wealth the exemption becomes less critical to planning process; planning should continue regardless. Planning should include multigenerational planning focusing on robust trusts located in trust friendly jurisdictions in which large wealth transfer occurs as part of long-term wealth transfers facilitated through robust trusts forming the basis of long-term planning strategies envisioned today or tomorrow.

GRATs, valuation discounts, note sales and other techniques should all remain viable options during a Trump presidency. With less pressure to complete their planning efforts in time and fewer concerns about what a Democrat victory would have done to tax planning now being off their minds, but future administrations might continue with Widen, Warren or Sanders-related proposals already laid out by this one administration – it would seem unwise not to pursue these techniques at least initially.
Wealthy individuals who have yet to establish major estate plans or are wary about doing so could easily create GRATs to hold marketable securities as an easy and straightforward alternative. Should stock markets remain hot during a Trump presidency, one effective strategy to limit market appreciation might be investing significant portions of your securities in two year rolling GRATs to limit any potentially excessive gains in appreciation of equity prices. GRATs may be structured with nominal current gift values (some practitioners find this helpful so they have something tangible to report when filing gift tax returns), which means there would be little risk if one were to fail. Not necessarily; those reluctant to plan just might gift away market performance above a required federal interest rate over four years of Trump presidency, potentially amounting to significant wealth transfer – an excellent way to begin estate planning!

Do Not Assume the Exemption Will Remain High
Your transfer tax exemption (also referred to as lifetime, estate and generation skipping transfer taxes) allows for transfers that you make free from transfer taxes such as gift, estate and generation skipping transfer taxes (i.e. without incurring gift, estate and generation skipping transfer taxes). Under President Trump’s first term and Tax Cut and Jobs Act of 2017, this allowance doubled from $5 million to $10 million but that bonus exemption expires by 2026; with inflation adjustments the $10 million exemption (currently at $13,610,000 in 2024 before increasing further to increase to around 13.9990 000 in 2025).

Estate planners have long advocated using your bonus exemption before 2026 as their refrain; many now assume the Republicans will extend it and thus there is no reason for planning now. As explained above, this decision would likely prove costly for very wealthy families; even for more modestly wealthy people it can be risky as there’s no assurance the bonus exemption will be extended; secondly predicting tax law changes is no less reliable than picking winning Lotto numbers! Do not gamble; rather plan for your estate differently now than you had in mind prior to an election. Estate planning was never meant solely as tax mitigation strategy and should never be seen solely as such an issue. Protecting your wealth against lawsuits, claims and divorce is of utmost importance when it comes to wealth preservation, so always plan for this eventuality when setting out to achieve wealth accumulation. So get back into planning but consider some fresh approaches tailored specifically for today’s Republican estate planning landscape.

Predicting New Tax Rules Is Impossible (Don’t Try!)
Candidate Trump promised tax cuts for Social Security benefits, tips and overtime pay. How will that be paid for? Every budget and tax policy decision involves tradeoffs; for instance it might be more important for Republicans to address political promises made than dealing with an estate tax rule that benefits only very wealthy people; they might consider spending their political capital towards maintaining current estate tax bonus exemption levels as this decision has already been legislated – thus cutting estate tax exemption by half by 2026 does not necessitate additional action from politicians today unless this was originally part of their campaign promises made prior.
Candidate Trump made clear he intended to impose tariffs. While they remain uncertain as a means for eliminating tax breaks for 2017, Republicans may believe tariffs enacted against China or others can cover costs associated with extending all 2017 tax breaks as promised (increase bonus estate tax exemption) while simultaneously using tariffs as a mechanism to scrap estate tax altogether! As noted previously in this introduction, President Trump may find a way through tariffs to completely do away with estate tax!
Wealthy taxpayers face an important decision: whether to plan just in case their exemption drops or wait and see. Although waiting can mean “losing out later”, taking this approach with taxes often amounts to “you snooze, you lose” so this should not be taken as the path. At least, you should consider initiating your planning now; even if transferring is postponed until more clarity emerges about its implications. There are planning approaches you might consider that could lock in your exemption while giving you flexibility if later you change your mind about using it. As such, planning can now begin that will either prepare you to use or actually utilize your exemption but still allow you to unwind any of this planning should the bonus exemption extend itself further. Possible techniques might include standby plans, QTIP’able trust plans, trust disclaimer plans and possibly recission; more on these techniques below.
Standby Trust Plan
If you wait and discover in 2025 that it appears likely that the bonus exemption will change (e.g., it drops from around $14 million to about $7 million), planning may no longer be an option if decided upon at the last moment. Practitioners may cease taking on new client work due to being overwhelmed with clients trying to complete planning; there may even be no estate planners with enough bandwidth left over to manage planning services properly – the take home message being don’t wait till 2025 before doing anything at all; consider what planning option may work best suit your situation: possibly standby trust plans may offer comfort?
Establish an irrevocable trust tailored to your planning needs as though the exemption had actually been reduced, then gift to that trust enough money for opening a brokerage account. Your goal is to open a trust brokerage account now in order to meet all bank or investment firm requirements and to have an operational trust account ready for use, acting like “standby mode.” If the Republicans can’t or refuse to prevent the expiration of bonus exemption, if necessary you have an existing trust that can transfer securities at short notice without needing to involve advisers (who might otherwise be too preoccupied). If the Republicans extend the bonus exemption and you change your mind about proceeding with your plan (which would be unwise from an asset protection perspective), any initial gifts made can be distributed back out and closed down quickly with only minor setup expenses incurred; these would pale in comparison to losing all your exemptions otherwise.
If the standby trust plan makes you more at ease, creating it on the cheap is also possible. Simply create a simpler trust in the state where you reside with an unchargeable family member trustee to save both time and costs from creating one with institutional trustees in trust-friendly states such as Alaska, Nevada, SD or Delaware with more robust features; or name an “endowment protector” and give them power to change trustees, situs and law within it if the bonus exemption sunsets and moves the trust into better jurisdiction or decanted into more robust trusts if necessary!
QTIP’able Trust Plan
One popular estate-planning technique is the qualified terminable interest property trust (“QTIP”). QTIP trusts qualify for the unlimited gift and estate tax marital deduction so one spouse may transfer unlimited assets into it without incurring tax cost. This technique offers you a way to lock in a bonus exemption now (but wait until 2025 to actually do it), deferring your decision until late 2026 when we should know more of what will become law – an ideal approach if you find yourself uncertain where you stand on this issue. A “QTIP’able” trust meets all the tax criteria of a QTIP but only becomes eligible as such when filing your gift tax return with the IRS and reporting that this trust qualifies for marital deduction in late 2026. So until such time as that decision has been reached it remains QTIP’able.
The QTIP’able Trust Plan offers married couples who are uncertain whether or not to make large gifts to secure some of the bonus exemption an effective solution. You make up to the $13,990,000 2025 exemption amount as an inter-vivos QTIP trust with terms which comply with tax law (listed below). This scheme lets both sides enjoy some tax relief!
Create a QTIP’able trust by 2025; funding it earlier may limit decision making process and time available to complete decision process. Once created in 2025 you would have until October 15, 2026 to decide on QTIP treatment when filing gift tax return. By doing this, a much longer timeline for knowing whether the bonus exemption has been utilized is provided. Should you use your bonus exemption, gift tax returns would no longer reflect a marital or QTIP election to cover trust assets. As this trust does not qualify under the QTIP election available on Form 709, no filing of gift tax return would suffice in making this election (merely possessing assets meeting QTIP criteria is insufficient to make an election).
If QTIP isn’t elected, your bonus and regular gift exemptions would likely be used since your transfer wouldn’t be protected by marital deduction. Because such trusts meet all the requirements for QTIP marital deduction, these trusts can qualify as being “QTIP’able”, although their election can still be delayed as per our earlier discussion; should the bonus exemption extend, should that cause you to change their mind, QTIP election would need to take place through your tax return filing.
* To qualify for marital deduction, the trust must fulfill certain criteria (other than gift tax reporting which is independent from its document):* Irrevocability must also be ensured.
* Your spouse must be a US citizen. Your spouse should receive a qualifying income interest for life that conforms with tax law – this involves making at least an annual distribution from trust earnings directly to them.
* Once granted, beneficiary spouse rights cannot be reduced or cancelled during his/her lifetime.
So if you are uncertain of your next move but do not wish to lose out on what may become an almost $7 million bonus exemption that might disappear, an QTIP’able trust plan might offer the ideal way forward.
Disclaimer Trust Plan
A “disclaimer,” also referred to as renunciation, occurs when one or more beneficiaries decides not to accept benefits of gifts and bequests received as gifts or bequests from someone. State laws and tax requirements must first be fulfilled. People sometimes disclaim when they no longer require money so that assets pass to other beneficiaries rather than directly to one named beneficiary. People sometimes file disclaimers if they find themselves embroiled in litigation, with the wealth passing to someone else instead of remaining exposed to creditors of primary beneficiaries. But this common legal and tax planning idea can be tailored to provide you with opportunities to take advantage of future changes to tax law, or give now to lock in bonus exemption but unravel in future due to tax law changes. Similar to QTIP plans discussed earlier, this planning idea takes an existing planning concept and modifies it so it works in your estate planning environment.
With a disclaimer trust plan, you make an irrevocable gift now to use up your exemption but include an option that would enable you to alter or cancel it at a later date if circumstances change. If you make a completed gift to a trust using this mechanism, using hindsight (i.e. seeing whether President Trump extends or eliminates estate tax altogether) you could undo your plan later on. So if you recognize the significance of planning and taking advantage of bonus exemption, but are hesitant due to an estate tax repeal, this approach might offer one viable strategy to consider. Disclaimer plans can be as straightforward as adding an “if/then clause” into any irrevocable trust document you would use otherwise in your estate plan. They’re flexible enough to suit many plans you might otherwise pursue and could potentially fit within an ongoing trust plan being reconsidered following election results.
Consider including in your trust document a disclaimer clause which, should it become active, would unravel gifts to it and name an initial beneficiary for the trust. Trust assets would be granted the power to be claimed back from all trust beneficiaries on behalf of all their trust assets, thus negating or undoing gifts made to it in some manner. This disclaimer differs significantly from those previously discussed; they have the express power to disclaim on behalf of all beneficiaries (i.e. on behalf of the trust itself) rather than acting solely against themselves. Further, when this disclaimer was activated, assets no longer belonged to other beneficiaries and instead returned directly back to the settlor/donor who created the trust, as if no transfer had ever taken place.
Recission
The approaches outlined above might provide assistance for people planning or thinking of planning; but what about those who’ve completed planning already and are unhappy about its outcomes, given Republican dominance? There’s another tax concept known as “rescission”, which may provide you with the means of undoing any planning done in 2024. Unfortunately, its effectiveness depends heavily on timing; you should review this option immediately as its implementation could require acting before December. Recission refers to treating transactions, like giving funds or property into an irrevocable trust, as null from their start. If an effective recission can be applied to such gifts under income tax law then all relevant requirements would have to be satisfied for an effective recission to take place. Once again, to reinstate their positions as they would have existed if no contract were ever formed, steps need to be taken within the same tax year in which initial transaction took place. A rescission can occur through mutual consent of all parties involved or one declaring unilateral rescission without receiving other party approval if sufficient grounds exist, or by applying directly for court decree of rescission.
As this can be a tricky issue, make sure that your tax advisers understand all aspects of this approach before considering it as a possible route forward. If it proves uncomfortable or unnecessary for any reason, have them review both your trust document and asset transfer documents for other strategies which might modify or at least enhance an already developed plan.
Reduced Estate Tax Worries May Prompt Increased Access to Trust Assets It appears estate tax worries have subsided significantly post-election as people pondered whether Elizabeth Warren’s recent estate tax proposal (or similar Democrat proposals over time) might become reality. Therefore, if asset protection benefits remain important but your estate plan could benefit from some preparation in case the estate tax becomes applicable again, why not increase access to your trust assets so as to feel more at ease planning even with less immediate concern regarding estate tax costs? Increasing access can give more confidence while planning even with reduced immediate estate tax worries.
Don’t simply gift assets away as is–try planning which gives you more access to them after giving. There are various approaches you could employ. Trust techniques with enhanced access may provide this access. For instance:
* Domestic Asset Protection Trusts, or “DAPTs”, in which the person creating it (known as the settlor) are also beneficiaries; Hybrid DAPTs can provide similar asset protection by beginning as non-DAPT trusts but later adding settlor back in as beneficiaries;
* SPATs (Special Power of Appointment Trusts) are trusts which do not permit their settlor, known as “settler”, to ever become beneficiaries, but instead allow a third-party who acts in non-fiduciary capacity direct the trustee to make payments directly back to settler – thus adding them as beneficiaries again in future payments.
For increased access, another approach would be to add certain provisions or mechanisms into any trust you use that might give you greater access: * Tax reimbursement clause, giving trustee the power but not obligation, to reimburse settlor for income taxes paid out from trust income earned.
* Loan provision designed to allow anyone without fiduciary duties the power to instruct the trustee to extend a loan directly to the settlor.
* Designating a charitable beneficiary as one of the beneficiaries.
* Personal use assets held within the trust can also be made accessible to spouse beneficiaries; an example would be holding on to an interest in a vacation home by way of SLATs.
Other Factors Should Encourage Continued Planning
Planning must always have been broad and holistic, not simply targeted toward reducing estate taxes. Asset protection remains just as crucial to most people no matter the tax law changes that might take place or even if the estate tax were repealed altogether – even after reviewing how planning more focused on asset protection may differ from plans contemplated before an election – for instance you might accept greater risk by shifting more wealth into protective structures for greater access and then be comfortable shifting it out again once access was gained.
Income Tax Benefits of Estate Trust Planning
Estate planning may provide non-estate tax advantages as well, including income tax savings in terms of current or future estate and income taxes, state income tax reduction through nongrantor trusts located in low or no tax states and basis planning using general powers of appointment (“GPOAs” should continue when appropriate; an example would include providing senior family members who possess exemption above their assets with formula GPOAs in order to secure step ups in income tax basis upon death.
Conclusion Estate taxes have certainly become less of a worry with Donald Trump in office than they were prior to election results being known, however planning should continue in an effective and personalized manner that accounts for uncertainty related to estate tax laws and asset protection and income tax planning goals. Plan in a way that works best for you by building in options and flexibility into your plan that allows for changes.