United States: Tax Planning For High-Net-Worth Individuals Under A Trump Presidency

Summary

Tax reform is one of the central components of Donald Trump's platform, and in many respects, his goals for tax reform are aligned with those described in the Tax Reform Task Force report issued by the House Republicans last summer. While we don't yet have yet have a clear understanding of his proposals, or a prediction of what will actually be enacted, it is very likely that some combination of the Trump Tax Plan and the House Republicans' Plan will become part of our tax law sometime next year.

In Depth

Tax reform is one of the central components of Donald Trump's platform. In many respects his goals for tax reform are aligned with those described in the Tax Reform Task Force report issued by the House Republicans last summer (the House Republicans' Plan). We don't yet have a clear understanding of the details of Trump's tax proposals (the Trump Tax Plan) or a prediction as to which parts of his proposal will be enacted. But the continued Republican control of the House and the Senate make it likely that at least some combination of the Trump Tax Plan and the House Republicans' Plan will become part of our tax law sometime next year. Because of a Senate procedural rule, it is possible that the tax changes that are adopted will be temporary, as the Bush tax cuts enacted in 2001 were.

Here is a list of the provisions of both the Trump Tax Plan and the House Republicans' Plan that, if enacted, will be likely to have the greatest impact on individual taxpayers.

Repeal of the death tax: Trump has made it clear that he wants to repeal the estate tax. It is not clear whether he would also propose to repeal the gift and generation-skipping transfer tax. The House Republicans' Plan eliminates the estate and generation-skipping transfer tax and says nothing about the gift tax. Until we know whether repeal will occur, and how broad that repeal will be, you may want to continue to implement estate planning strategies that do not have a significant risk of attracting a gift tax. Even if the estate tax is eliminated, if the gift tax remains, you may want a way to make funds available to your beneficiaries before your death.

Because it is difficult to predict what form repeal would actually take, and whether, if enacted, it will last beyond the Trump presidency, it is important to build flexibility into your estate plan. You may want to give the individual who holds your power of attorney an expanded power to make certain changes to your estate plan in response to changes in the tax law. This power, for example, could be used to change an outright bequest to a spouse to a gift in trust if repeal occurs before your death and at a time when you no longer have the capacity to make changes. An outright gift to your surviving spouse will not increase your family's estate tax burden under current law. But if your death occurs during a year in which there is no estate tax and the death of your spouse occurs after the estate tax has been restored, a gift to your spouse in trust rather than outright could save significant taxes for your family.

Tax on unrealized appreciation at or after death: The Trump Tax Plan on unrealized appreciation at death is not spelled out clearly. As described on his website, his plan states that "capital gains held until death and valued over $10 million will be subject to tax. . . ." This statement does not tell us whether the tax will be imposed on the death of a decedent or at a later time when the decedent's beneficiaries sell the appreciated property. The House Republicans' Plan leaves the basis adjustment at death (commonly referred to as a basis "step-up") in place.

If the Trump Tax Plan taxes unrealized gain at death, lifetime transfers may be able to avoid that gain. If it does not tax unrealized gain at death, but merely requires that beneficiaries take a carryover basis, tax planning will be important to avoid burdening beneficiaries with capital gain taxes in excess of the value of their inheritance (for example, due to debt encumbering the inherited property).

The elimination of basis step-up at death could result in the imposition of additional taxes on your estate if you have created grantor retained annuity trusts (GRATs) or have sold appreciated property to grantor trusts for notes. There are provisions that could be added to your current wills that, under current law, would eliminate this risk.

Cap on itemized deductions: The Trump Tax Plan includes a provision limiting an individual's itemized deductions to an annual $100,000 amount ($200,000 for joint returns). This limitation would impose a significant restriction on the use of the charitable deduction. The House Republicans' proposal eliminates all itemized deductions other than the deduction for home mortgage interest and charitable gifts.

To protect against the possibility that Trump's proposal will prevail on this issue, individuals who plan to make large charitable donations over the next several years may want to consider accelerating those gifts into 2016.

Contributions of appreciated assets to private foundations: Trump's Tax Plan states that "contributions of appreciated assets into a private charity established by the decedent or the decedent's relatives will be disallowed." It is unclear what "disallowance" means and whether this disallowance will apply only on death, or whether it will also apply to lifetime transfers. If you are planning to make significant gifts of appreciated property to your private foundation in the near future, you may want to consider accelerating your gifts into 2016. If you are planning to make substantial gifts at death to a private foundation, you may want to consider adding a contingent alternative gift to a public charity in case you are not able to amend your estate plan if this aspect of Trump's Tax Plan is enacted.

Tax Rates: The investment and business income of individuals is now subject to a tax rate as high as 43.4 percent (23.8 percent in the case of long-term capital gains and qualified dividends), including the 3.8 percent tax on net investment income. The Trump Tax Plan would decrease that top tax rate to 33 percent (20 percent in the case of long-term capital gains and qualified dividends). At one time, the Trump Tax Plan called for a tax rate of 15 percent on the business income of individuals who earn this income from a flow through entity, such as a limited liability company or subchapter S corporation, but this proposal seems to have been withdrawn. The House Republicans' Plan would also reduce the top rate to 33 percent. In addition, the House Republicans' Plan would lower the effective top tax rate applicable to capital gains, interest and dividends to 16.5 percent, and the top rate applicable to the business income of individuals who earn this income directly or receive it from pass-through entities to 25 percent. Both proposals would also eliminate the alternative minimum tax.

If you are contemplating a transaction that would result in the recognition of substantial income, such as the sale of appreciated assets, if feasible, you might want to consider deferring the transaction until 2017.

Minority, Marketability Discounts: Many clients were considering transfers by year end or early in 2017 to capture marketability and minority discounts for interests in non-public partnerships and corporations. The impetus for the transfers was concern that controversial proposed regulations targeted at reducing those discounts could become effective shortly. A significant number of members of Congress had indicated strong opposition to the purpose of these proposed regulations, which we also believe are technically flawed. We now think it highly unlikely that adoption of final regulations in the nature of the proposed regulations would survive the next Congress. It is our view that it is unnecessary to immediately complete any transaction due to concern that the regulations will become effective in the near term, or remain in place if they were finalized.

Tax Planning For High-Net-Worth Individuals Under A Trump Presidency

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Arnold & Porter
Shearman & Sterling LLP
Morrison & Foerster LLP
Hughes Hubbard & Reed LLP
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Arnold & Porter
Shearman & Sterling LLP
Morrison & Foerster LLP
Hughes Hubbard & Reed LLP
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions