Conservative politicians on the national stage have talked about repealing the estate tax since it was established over a century ago, but aside from brief periods between 1926 and 1932 and in 2010 when it was repealed, we have been living with a version of the estate tax in one form or another ever since. But with a new president who has left no question about his dedication to pursuing goals previous presidents have not pursued, for better or worse, there is the possibility that his campaign promise of ending the estate tax may indeed be a reality at some point in the coming years. What does this mean for you? Without knowing when a repeal might occur, it is difficult to say, but here are a few things to keep in mind when thinking about preparing for a potential estate tax repeal.
Any Repeal Might Be Later Reversed
President George W. Bush also campaigned on an estate tax repeal, and what was actually instituted was a 10-year reduction in estate taxes, at which point they would be phased out entirely. What happened 10 years into this plan? By 2010, a new president was in office, and the estate tax, while gone for a year, was brought back in much the form as it had previously existed.
Because estate taxes are assessed at the time of death and pursuant to the taxation system in place at that time, the policies of one presidential administration may be completely irrelevant to how your estate is eventually taxed.
Estate Taxes Might Be Replaced By Similar Taxation
Politicians are smart, and they know that their constituents are often focused on several issues while ignoring other issues that might affect them just as much, and nowhere is this more true than with regard to taxation. For example, workers must pay both income taxes and payroll taxes, which include social security taxes and Medicare taxes. Several years back, a conservative congress who expressed vehement opposition to raising income taxes on any persons voted to increase social security taxes on workers, and most of the public, focused on income taxes, didn’t bat an eye.
The same might well be true of estate taxes, which have grown in the public consciousness as “death taxes” and thus raised public ire. If the estate tax is repealed, then the federal government may slyly move to raise other types of taxes that could affect your estate, such as increased capital gains taxes on transfers of stock and other property, increased gift taxes, and so on.
So, What Should I Do?
If the above makes you think that estate taxation is a complicated and ever-changing system that requires flexibility and vigilance, then you are exactly right. But the good news is that there are numerous strategies you can take to prepare for not only an estate tax repeal but any other legal changes that come. Three main approaches you can take are:
- Create a Power of Attorney. By appointing someone knowledgable and trustworthy to manage your finances should you become incapacitated, you are placing a hedge against volatile changes. That person can continue to manage your estate’s affairs both before and after your death to address all types of issues that might arise closer to the time that any estate-related taxes are assessed.
- Focus on the Estate Planning Issues That Matter Now. All too often, the estate tax issue drowns out other issues that are far more important to your current estate planning, and which you can actually take action on now. Work with an estate planning professional to maximize deductions as well as to maximize contributions to tax-saving planning funds.
- Make Estate Planning an Ongoing Goal. As you can see, estate planning is not something that can be done once, then left alone. Laws change, and you will need to change your estate planning with those goals. Work with a trusted advisor who will be by your side through the years to make needed updates.
Work with a Pasadena Estate Planning Attorney Today
Christopher B. Johnson is an estate planning attorney in Pasadena, CA who has helped thousands of individuals and families over the past 18 years in creating and reaching their estate planning objectives as well as in navigating the probate process in California to achieve positive outcomes. Schedule a consultation with him today to discuss your estate planning and/or probate goals.