United States: Possible Repeal Of The Estate Tax In 2017

The election of Donald Trump as the next President, along with continued Republican party control of both the House and the Senate, could signal that 2017 will be the year that the estate tax is repealed.  This confluence of events significantly elevates the possibility of success for tax reform, including estate tax repeal.  This alert focuses primarily on the estate, gift, and generation-skipping transfer tax, and the treatment of basis at death.  We have outlined potential changes to the individual income tax in a separate Alert.

President-Elect Trump's plan is light on details, but it is clear that he believes that the estate tax should be repealed.  The fate of the gift tax and the generation-skipping transfer tax ("GST" tax) is less certain under the Trump plan, as is the step-up in basis on death that is available under the current estate tax regime.  Other GOP proposals, including Speaker of the House Paul Ryan's plan, "A Better Way," are more clearly defined.  The situation is dynamic, but this alert describes the current state of play and discusses what clients—who have or might have taxable estates under current law—should discussing with their tax advisers now.

What Is In Play?

Estate Tax.  President-Elect Trump's proposal and all of the GOP proposals include repeal of the estate tax (which they most often refer to as the "death tax").  While a partial or complete phase out (such as the one in 2001 to 2009, which increased the exemption amount from $1 million to $5 million) is possible, it seems more likely that total repeal of the estate tax would take place either immediately upon passage, retroactive to January 1, 2017, or effective on January 1, 2018, although a midyear effective date is also possible.

Gift Tax.   The rhetoric against the estate tax always labels it a "death tax."  As such, the gift tax could remain unchanged.  Neither Trump's proposal nor "A Better Way" indicates that the gift tax would be repealed.  This outcome would be consistent with the April 2015 repeal bill and our experience in 2010.  In the 2001 tax act (which enacted the 2010 one-year repeal), the gift tax was left in place to protect the income tax base.  In other words, the belief was that the gift tax was needed to prevent taxpayers from "income shifting."  For example, without the gift tax in place, a taxpayer could gift appreciated assets to family members in a lower tax bracket, have the lower-bracket taxpayer sell the asset and realize the gain, and then gift the net proceeds back to the original transferor.  Another concern was that a U.S. person could transfer an appreciated asset to a foreign relative who could realize the gain without paying any U.S. income tax, and later gift the proceeds back to someone in the U.S.  Repealing the gift tax would also greatly increase the revenue loss of the proposal.  If these concerns remain, then repeal would not be likely to include the gift tax. 

GST Tax.  President-Elect Trump's proposal does not mention the GST tax, but inasmuch as his entire "death tax" proposal contains only two sentences, details are yet to emerge.  "A Better Way" expressly includes repeal of the GST tax.  Furthermore, the last time the House of Representatives voted to repeal the estate tax (in April 2015), repeal of the GST tax was included, and in 2010the one year of estate tax repeal that resulted from the 2001 tax actthe GST tax rate was set to zero, which had the effect of a temporary repeal.  Based on this history, we think it is likely that the GST tax would be repealed along with the estate tax.

Basis at Death.  Under current law, in general, assets included in a decedent's estate get a fresh basis equal to the value of the asset on the date of death.  While this is commonly referred to as a "step-up" in basis, it also conceivably could be a "step down" in basis if an asset has declined in value to less than its adjusted cost basis.  A step-up in basis effectively forgives the capital gains tax that would otherwise be paid on appreciation that has accrued but has not been realized at the time of death.  Historically, a basis adjustment was allowed at death on the principle that it would be too burdensome to subject these gains both to an estate tax and a capital gains tax.  (Note that capital gains realized before death are subject to both capital gains tax and estate tax, but capital gains taxes paid before death have the effect of making the taxable estate smaller.)

In 2010, repeal of the estate tax included a carryover basis at death for most assets.  (An executor was given a fixed amount of basis that could be allocated to assets included in the decedent's estate.)   While that experience was not as much of a disaster as predicted, estate tax repeal bills since then have generally left the step-up in basis at death in place.  Both the April 2015 House bill and "A Better Way" make no change to current law with respect to basis at death.

Trump's proposal states that "capital gains held until death and valued over $10 million will be subject to tax to exempt small businesses and family farms."  That statement implies that in the absence of an estate tax, Trump would treat death as a recognition event and tax capital gains on death.  An exemption of $10 millionit's unclear whether that is per person or per couple, and whether that is $10 million of gain or $10 million of assetswould apply.  Although small businesses and family farms are mentioned, there is no indication that the $10 million exemption would apply only to businesses and farms.

Taxing capital gains at death is the option that Canada selected when that country repealed its estate tax in 1971.  However, like the imposition of an estate tax, taxing capital gains at death can be criticized as collecting a tax when there is no recognition event.  Typically this problem would be addressed by allowing an estate with illiquid assets to pay the tax over time.  Taxation of capital gains at death is not considered a favorable provision for the owners of closely-held businesses and farms, but at least the ratea 20% capital gains rate vs a 40% estate tax ratewould be appreciably lower.  Economists, on the other hand, generally see the loss of an incentive to hold assets until death as a positive development, because it tends to make transfer of capital more fluid.

On balance, we think it unlikely that Congress will enact a regime that includes death as a realization event.  Far more likely is either retaining the existing step-up at death or replacing it with a carryover basis (or modified carryover basis) system.     

Would There Be Sufficient Votes in Congress To Do This?

There are two procedural rules that could stand in the way of repeal of the estate tax.  Both impact only the Senate consideration of a repeal bill.  Right now it takes 60 votes to stop a filibuster.  It seems unlikely that Senate Republicans could muster 60 votes to end a filibuster.  In addition, the Senate might adhere to the "Byrd Rule," which requires a 60-vote majority to pass any bill that has a negative impact on revenue outside of the 10-year revenue window.  However, both of these rules are procedural and could be changed in the next Congress. 

Even with those rules in place, there are several potential paths to passage.  First, it is our expectation that estate tax repeal will be a part of a larger tax reform bill.  Such a bill could have sufficient bipartisan support to garner a 60-vote majority.  Second, the bill is likely to be in the form of a budget reconciliation act, which is not subject to filibuster.  Finally, it would be possible to make the bill revenue neutral in the "out" years (those years outside the 10-year Senate budget window), by adding a sunset provision like the one in the 2001 tax act.  Consequently, we can envision several options leading to enactment of a tax reform bill that includes estate tax repeal.  

How Should We Think About Planning In This Environment?

With a significant chance of estate and GST tax repeal next year, clients who have or might have taxable estates under current law should begin to review their estate plans proactively now with an objective to implement changes after the expected legislation takes shape.

  • All formula clauses in estate planning documents should be reviewed to make sure they will work as intended if the estate and GST taxes are repealed.
  • The overall estate plan should be reviewed to see whether it is appropriate in the event that the estate and GST taxes are repealed.  It might be advisable to draft alternative provisions for the estate planning documents to take effect in the event the taxes do not apply.
  • The estate plan should be sufficiently flexible to accommodate foreseeable future changes in law.
  • In most circumstances, taxable gifts should be delayed until we see the Congressional proposals so that we can evaluate the provisions regarding gift tax and basis.
  • Income tax and capital gain planning are likely to become more important if the estate tax is repealed.
  • States (such as Maryland and New York) and the District of Columbia with estate taxes will likely continue to impose them, so some estate tax planning will still be helpful to residents of jurisdictions with state estate taxes.

This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.

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.

Beth Shapiro Kaufman
William D. Fournier
In association with
Related Video
Up-coming Events Search
Font Size:
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
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.