®
Winter 2017
PMS 627
D
ONALD TRUMP’S ROAD TO THE PRESIDENCY INCLUDED PROMISES TO
OVERHAUL THE U.S. TAX SYSTEM, INCLUDING REPEALING THE ESTATE
TAX. IN THE COMING MONTHS YOU WILL HEAR MUCH SPECULATION ON THE
POTENTIAL CHANGES, BUT LITTLE ON HOW THEY MAY AFFECT YOUR CAREFULLY DESIGNED ESTATE PLAN. WE WILL DO OUR BEST TO REMEDY THIS
HERE.
Death Knell for the Death Tax?
As the Trump Presidency begins, a proposal
to repeal the estate tax headlines a vast
range of proposed tax code changes.
BY NICHOLAS J. BERTHA JD, Director of Wealth and Trust Planning
As Donald Trump’s presidency begins, his early
legislative priorities are said to include a repeal of the
estate tax, and what some are calling the most substantial
changes to the tax code since the Reagan and Bush
reforms in 1986 and 2001.
In the coming months we will be inundated with news
articles about the proposals, and especially about the
politics of getting them passed. You will hear about
revenue neutrality, income inequality, and, since it is
apparently the buzzword of the year – binary choices.
Unfortunately, you won’t hear much about whether
your GRAT will still perform its intended function,
or whether your family limited partnership still makes
sense, or what the absence of an estate tax might mean
for your carefully designed estate tax funding strategy.
Those of us in the wealth planning profession are
normally cautious to avoid speculation about coming
changes in tax law and in IRS rules. Every idea is subject
to change until it is not, and much effort by clients can
be wasted on maybes. But this is different. The potential
implications of the Trump proposals (and their first
cousin, the Ryan-Brady or “House Republicans” plan)
are vast, and could force us to re-think much of today’s
conventional wisdom about tax strategy.
Yes, it is too soon to act. It is even too soon to take some
of these proposals seriously. But it is not too soon to start
to wrap our minds around what could change, and begin
to ponder what we might do about it.
INCOME TAX AND STANDARD DEDUCTION
We’ll nibble at one of the more concrete proposals
first. The Trump proposal would drop the top rate
on ordinary income from 40.05% to 33%1. Brackets
would be simplified from seven to three. The standard
deduction would nearly quadruple to $50,000 for
couples filing jointly.
Trump’s proposal would also eliminate the Alternative
Minimum Tax (AMT), the much-maligned parallel tax
universe created in 1969, ostensibly to prevent about
150 ultra-wealthy tax payers from using deductions and
credits to zero-out what they owed in taxes.
Because the thresholds were not properly indexed for
inflation, and because marginal tax rates on the regular
tax decreased, the AMT eventually ensnared about 4
million taxpayers per year2, virtually all of whom are
paying what is, in effect, a surtax that was never intended
for them.
Now onto the marquee event.
DEATH TAX: REPEAL AND REPLACE
The bright, shiny object in the Trump proposal is the
repeal of the Federal estate tax. The tax has been in place
®
1. Current: 39.6% at $470,701 threshold, + 0.9% Medicare surtax on earned income. Trump: 33% at $225,000 threshold. House Republican plan:
33% at $231,450.
2. Tax Foundation
Fieldpoint Private 1
since 1916. It kicks in above the $5.49 million
exemption and presently tops out at 40%. For my fellow
tax history buffs (I can’t be the only one, can I?), it has
been as high as 77% (from 1954-1977, for estates above
$10 million), and it is the source for an entire industry of
professionals (including yours truly) and an alphabet
soup of strategies designed to mitigate its effects.
The proposed repeal, however, is not quite what it
appears to be. In the absence of an estate tax another
form of death tax will be triggered — a tax on the
deceased’s unrealized capital gains. If the proposal
becomes law it will apply on estate assets over a $10
million threshold.
The applicable tax rate would also change. Given the
proposed elimination of Obamacare, the long-term
capital gains tax rate (assuming that would be the rate
used) would no longer carry the 3.8% Affordable Care
Act surtax. This would put the rate at 20%.
THE BRIGHT, SHINY OBJECT
IN THE TRUMP PROPOSAL IS
THE REPEAL OF THE FEDERAL
ESTATE TAX
The proposal is certainly welcome. After all, 20% is
always less than 40%, and the capital gain on something
is almost always less than the total value of that thing.
That said, this would be a sweeping change, with many
moving parts yet to be resolved, recordkeeping challenges
to be contemplated, and important strategic implications
for wealthy families.
The mechanics of this are, in these early days, still
undefined. One unanswered question is when the capital
gains tax would need to be paid -- at death or upon the
sale of the asset by the inheritor, or at some other date?
The answer will carry important implications for estate
planning strategy. For instance, if the tax is due at death,
lifetime transfers (like gifts to family members) may help
mitigate the tax hit, as they always have. But if the tax
is payable later, such as upon asset sale by beneficiaries,
traditional concerns about the availability of liquidity
to pay the tax might be diminished, only to be replaced
by new issues like large estates remaining open for very
long periods of time, and collateral issues such as whether
there might also be a capital gains tax to the beneficiary
at the time of sale.
As architect Ludwig Mies van der Rohe said, “God is in
the details.”
Of course, under a regime of taxing unrealized gains,
many of the “old” estate tax concerns such as valuation,
liquidity to pay estate taxes, etc. would remain. All of this
being said, the House Republican Plan simply abolishes
the estate tax altogether. Let’s hope for this simplicity.
The Step-Up
A related question regards the longstanding rule that
allows a tax-cost-basis adjustment to be applied to assets
reflecting their value on the date of death (commonly
called the “step-up”). The step-up eliminates the double
whammy of death: assets getting taxed on their capital
gains and on their valuations.
The net result of the Trump plan will likely be a similar
effect. While the unrealized gain as of the date of death
becomes taxable to the estate, it is likely that beneficiaries
will receive the assets on a stepped-up basis, since the
piper will already have been paid.
On the other hand, Thornton (“Tim”) Henry, a tax
attorney with Jones, Foster, Johnston & Stubbs in West
Palm Beach, Florida, is skeptical that estate tax repeal will
happen in 2017 —certainly not all at once, and definitely
not permanently. “If people assume it is going to go away
permanently, I think they’re smoking something,” he
said. “Congress doesn’t have the votes to do it all at once.
This will probably be a ten-year sunset rule.”
GIFT TAX: SILENCE BEGETS SPECULATION
The Trump and House plans are both is silent on the gift
tax, but there is much speculation that it, too, will be on
the chopping block. We, along with most practitioners,
believe this is unlikely at best.
Gifts enable taxpayers to move assets out of their taxable
estate. One purpose of the gift tax has been to serve as
a backstop for the estate tax, deterring unfettered asset
transfers that would otherwise render the estate tax
moot.
Though the estate tax may go away, the capital gains
tax that replaces it will need no less of a backstop.
“Nevertheless,” adds Brian Cheslack, a partner with Day
Pitney/Chapin Ballerano and Cheslack in Delray Beach,
Florida, “The estate planning field is really in a limbo
situation, because you don’t want the client to incur the
expense of the tax mitigation, like a large gift to reduce a
future estate tax, when the future tax itself may be gone.”
The upshot? For now, clients would do well to continue
Fieldpoint Private 2
to operate as if the gift tax will remain in place, but be
prepared to consider quick action if it is not.
LONG-TERM CAPITAL GAINS:
OBAMACARE SURTAX CUTS
The Trump and Republican House proposals both
presuppose the repeal of Obamacare, and thus, of the
Obamacare surtax on investment earnings. Under the
Trump plan, such a repeal would reduce the top longterm capital gains rate from its current 23.8% to 20%.
This would be good news for most but not all. While
today’s top rate only kicks in at $470,000 of taxable
income (for married couples filing jointly), the Trump
proposal would apply the top rate at just $225,000,
resulting in a tax increase for those caught in the middle.
The House proposal is quite different. It would exclude
the first 50% of gains from tax, and would tax the other
50% at the ordinary income rate (maximum of 33%3).
The net effect would be a 16.5% top rate. It would also
extend this treatment to qualified dividends and –
notably – to interest income as well.
CARRIED INTEREST:
TAXED AS ORDINARY INCOME
Carried interest, which is a portion of the return earned
by private equity and hedge funds4, has always enjoyed
favorable tax treatment. The term, which refers not to a
form of interest revenue but to the financial “interest” the
investor holds in the investment, is taxed at the long-term
capital gains rate, which currently tops out at 23.8%, far
below the top rate on ordinary income, 40.05%.
This lower rate has long been viewed as unfair by
proponents of a more progressive tax code, and as a
reasonable compensation by investors who are putting
capital at risk and helping to drive economic growth.
Ironically, now that a Republican will occupy the White
House and enjoy majorities in both houses of Congress,
both the Trump and House proposals would end the
favored tax treatment for carried interest, taxing it, at
least in part, as ordinary income. Trump’s proposal would
tax all carried interest as ordinary income, while the
House proposal would apply ordinary rates to an amount
representing “reasonable compensation.” For earnings
that exceed “reasonable,” it is unclear what rate would
apply.
ITEMIZED DEDUCTIONS: CAPPED
Today it is of course possible to offset federal tax on large
portions of income via itemized deductions. These can
include contributions to public charities and private
foundations, business expenses, state and local taxes, and
medical expenses. Some of these are subject to a cap,
others to a percentage limit on deductibility, but there is
no overall maximum.
Under the Trump proposal, itemized deductions would
be capped at $200,000 per year for joint filers. While the
proposed estate tax repeal gets all of the headlines, for
some this would be the most significant of the potential
changes.
For instance, if you are planning for a major liquidity
event, such as the sale of a business, this might be a
difference maker, particularly as it pertains to charitable
contributions. Under current law, through various
techniques, it is possible to shield a significant amount
of income from tax, based on amounts you contribute
to a charity or different forms of charitable trusts, e.g.
CLATS, CRUTS. Though the deductibility is subject
to certain limitations5, you, currently, can use carry-over
deductions for up to five additional years to maximize
your total deduction.
For those anticipating a very large liquidity event and
who are also charitably inclined, the $200,000 cap is just
a rounding error from zero. While you would benefit
from the lower income tax rate, the curtailment of
charitable deductions might more than offset the savings.
Did someone say “revenue neutrality”?
By contrast, the House proposal — while it carries no
such cap — disallows all deductions other than mortgage
interest and charitable gifts.
Many tax professionals, myself included, do not expect
this cap to become law. Tim Henry agrees. “The big
charities and their supporters are going to be pretty
strongly against it,” says Mr. Henry. “The community
foundations and the states are going be against it, too.”
CONTRIBUTIONS TO PRIVATE CHARITIES:
TAX BENEFIT DISALLOWED
In easily the most head-scratching element of the
proposals, the Trump plan would do away with the tax
benefits of contributing appreciated assets to private
3. Above the House’s proposed $231,450 income threshold.
4. Private equity and hedge fund investors typically earn a management fee (eg. 2%), which is taxed as ordinary income, and a share
of the partnerships profits (the carried interest). That share is considered a long-term capital gain for tax purposes (if invested >1 year).
5. Deductibility of charitable contributions of cash are subject to the 50% adjusted gross income (AGI) and Pease limitations. Long-term capital gain
property has a 30% limitation.
Fieldpoint Private 3
charities, such as family foundations. We handicap the
passage of this somewhere below passage of the Flying
Pigs Tax Credit, but in the wake of what we have seen
occur in the last two months, who are we to discount
anything?
The question many are raising is, why disallow anything
charitable, and why, in particular, private foundations?
This is not explained in the proposal, but should it
become law the remedy is straightforward: public
charities. One type of public charity, the donor advised
fund (DAF), can function much like a private
foundation in that it can accumulate and invest funds,
and then distribute them at your direction to the
charitable entities you identify. Under current law it
allows higher tax deductibility of donations6, carries
lower operating costs, and offers greater privacy and
anonymity, should you wish it.
MAKE AMERICA GRAT AGAIN?
IMPLICATIONS FOR YOUR PRE-EXISTING
ESTATE STRATEGIES
If you have or will employ strategies designed to remove
assets or future appreciation out of your taxable estate,
such as a GRAT (grantor-retained annuity trust) or an
IDGT (intentionally defective grantor trust), nothing
about the proposed tax changes affects whether these
will still have value under a Trump tax regime. The
question is, how much value? That will depend on how
the laws are written and how they change over time, but
they will certainly retain enough advantages that you
won’t, necessarily, regret their irrevocability.
THE QUESTION MANY ARE
RAISING IS, WHY DISALLOW
ANYTHING CHARITABLE, AND
WHY IN PARTICULAR PRIVATE
FOUNDATIONS?
Dynasty Trust
The dynasty trust is designed to pass wealth over
multiple generations, free of estate, generation-skipping
(GST)7 and gift tax, and protected from divorce,
creditors and other risks. As tax legislation winds
through Congress, those who are considering a dynasty
trust may wonder whether it is still as necessary as once
thought, and those who already have one may wonder
whether it still serves any purpose.
We believe the answer in both cases is yes.
If the Trump proposal prevails, we expect the dynasty
trust will be immune from a future capital gains death
tax in the same way that it is immune from today’s
transfer taxes.
On the other hand, if the House proposal (repeal the
estate tax and replace it with nothing) prevails, the
calculus is indeed changed -- but not the outcome. In
this instance the GST would likely be rendered moot
(because it would be based on skipping a tax that
would no longer exists), which would seem to remove a
primary rationale for the dynasty trust. However, just as
one election can repeal a tax law, a future election could
just as easily reinstate it. Considering the trust’s creditor
and divorce protections, and the likelihood that the
estate tax will one day magically reappear, if you are
considering a dynasty trust (especially if there is no gift
tax), you still have good reasons to continue to explore
the idea.
The Steinbrenner Principle
One YUUUGE caveat. If, by some quirk of history
the gift tax is repealed, all bets are off. Remember, we
saw something similar for a short while in 2010, when
the estate tax was allowed to expire, albeit temporarily.
Yankee owner George Steinbrenner passed away during
the hiatus, which enabled his family to hold onto his $1
billion plus empire with no estate tax.
If the gift tax is repealed, assume it will be temporary
and work with your advisors to move as quickly as
possible to gift assets directly, or into trust, where they
should be beyond the reach of any regime of death taxes
now and in the future, while also supplying attractive
levels of creditor protection.
CHARITABLE TRUSTS - WOUNDED
Some charitable trusts are established for purely
philanthropic reasons, with the income tax deduction
as a pleasant side effect. Nothing in the Trump proposal
would affect the central rationale for these vehicles.
However, as noted above, the proposed $200,000
annual cap on allowable deductions would be material
in cases where very large charitable trusts were in the
planning stages, as a component in a design to offset the
income tax on a significant liquidity event, such as the
6. See Fieldpoint Private white paper, When Checkbook Philanthropy is No Longer Enough
7. The GST was created in 1986 and applies a second layer of taxation on the initial generation-skipping gift, in effect
compensating for the generational transfer tax that that gift avoids. The net effect of the GST is to mitigate the tax efficiency
of dynasty trusts funded above the exemption level ($10.9 for couples in 2017), limiting their size.
Fieldpoint Private 4
sale of a business or the repatriation of offshore income.
If the proposed cap passes, there is no easy workaround. Those preparing for such an event will take a
hit on income tax, but may take some solace in paying
(potentially) a lower rate than under the current regime,
and can hold out hope that what remains in their estate
one day may pass to their inheritors with a much smaller
tax. Again, whether the charitable deduction is curtailed
is very much a matter of speculation.
FAMILY LIMITED PARTNERSHIPS LIKELY TO BE SPARED
Prior to the election, the Treasury Department
proposed regulations to IRS Section 2704 that would
end most valuation discounts for family limited
partnership or other intra-family business transfers.
These discounts have long been employed to reflect the
lack of marketability of the transferred shares, and the
lack of control of the holder over the shares. They have
the ability to turn a $10 million gift into a $6.5 million
gift for transfer tax purposes, and are a go-to tool for
gifting, and for pre-liquidity tax planning for business
owners.
The proposal to end the discount follows years of
Treasury efforts to get Congress to do the deed, to no
avail. They may have wished they had started sooner.
While prior to the election it had appeared likely
these changes would go into effect sometime in 2017,
the Trump election and his choice of a new Treasury
secretary throw all of this up in the air.
Notwithstanding, prudence would dictate no definitive
action should be taken until the law on this and the
estate and gift tax is more clear.
IMPLICATIONS FOR INSURANCE
Life insurance is often used to fund estate tax. It would
follow, then, that the lower the estate tax, the less life
insurance would be required, right?
Here, again, we would urge caution. As in all things
related to the new proposals, assume the pendulum
will eventually swing the other way. Today’s repeal is
tomorrow’s reinstatement. If the Trump proposals
pass, your life insurance levels and strategies should
definitely be on the list for review with your advisor
and tax and insurance professionals. In so doing, your
guiding principle should be that nothing is forever, and
flexibility is king.
That said, if the estate tax spotlight shifts to capital
gains, investment strategies that “cocoon” capital gains
from taxation may become more attractive, and those
that can do so without requiring assets to be turned over
to an irrevocable trust could become more attractive
still.
Enter good old fashioned cash-value life insurance.
Within this broad class exists a particular type of policy,
known as private placement life insurance (PPLI). Like
any cash-value policy, assets in a PPLI “wrapper” grow
free of ordinary capital gains tax and free of ordinary
income tax. Unlike the mundane investment options
in traditional life, however, PPLI’s cash value may be
invested using a custom wealth management strategy,
including hedge funds, funds of funds, real estate,
commodities and more. As the coming tax regime
comes into focus, you may wish to make this part of the
discussion.
WHAT NOW?
If the Trump proposals pass and the estate tax is
replaced with capital gains tax, or the House proposal
passes and there is no death tax at all, your estate plan
will need immediate attention. We strongly recommend
review of your current plan, and its attendant wills and
trust documents. As part of this, life insurance acquired
to augment your estate planning should be reviewed,
but not necessarily dropped.
If such dramatic changes come to pass, the decanting
(revocation) of certain irrevocable trusts will become a
larger and larger issue.
If the proposed changes come to pass, they will
represent the most consequential change to estate and
gift tax law in decades, with ripple effects that could
extend for generations. Many in the estate field, Jones
Foster’s Tim Henry included, believe that change on
this scale could merit baking more flexibility into estate
plans going forward. “I’ve been very reluctant to do this
in the past,” he says. “But going forward I will be looking
at giving somebody – whether it’s a trust protector
or trustee – the ability to change an estate plan in the
future.”
“You know,” adds Mr. Cheslack, “They’re trying to make
a flatter tax system, with less flexibility for deductions.
But there are always going to be smart people running
around figuring out ways to take the best advantage
from the tax rules. The industry is not going to go away.
Whatever happens, there are always going to be taxes.”
At Fieldpoint Private, we will be keenly focused on this
issue, and stand ready to provide an objective second set
of eyes in the review of your plans.
Fieldpoint Private 5
2017 Taxes: Current and Proposed
Where applicable, all assume married filing jointly. All Trump and House Republican proposals assume repeal of Obamacare surtax.
TAX TYPE
2017
IF NO CHANGE
TRUMP
HOUSE
REPUBLICANS
COMMENTARY
Ordinary income
(top rate / threshold)
40.05% / $470,700
(incl. 0.9% Medicare
payroll surtax)
33% at $225,000
33% at $231,450
Standard deduction
$12,700
$30,000
$24,000
Business “pass-thru”
entities (S-corps, LLCs,
partnerships)
Ordinary income taxed
at schedule rates
Ordinary income taxed
at schedule rates
Max. rate 25% on active income
(small businesses).
Long-term capital gains
(top rate / taxable
income
threshold)
23.8% (incl. 3.8%
Obamacare) / $470,700
20% / $225,000
50% exclusion, then taxed as ordi- Trump plan is an increase for
nary income. Effective top rate
taxable income from $200,000 to
16.5% /$231,450.
$470,699.
House plan is a significant tax
reduction.
Short term capital gains
Ordinary income rate
(max. 39.6 %) plus
Obamacare surtax
(3.8%). Max. total
43.4%.
Ordinary income rate
(max. 33%)
Ordinary income rate (max. 33%) Both Trump & House plans “free”
of Obamacare surtax
Carried interest
Taxed at long-term
capital gains
rate (23.8% tot.)
Taxed as ordinary income
“Reasonable compensation”
taxed as ordinary income. Rate
on amounts above “reasonable”
is TBD, though likely long-term
capital gains rate.
Qualified dividends /
threshold
Taxed at long-term
capital gains rate (23.8%
tot.)
20% / $225,000
50% exclusion, then taxed as
ordinary income. Effective top
rate 16.5% / $231,450.
Interest
Ordinary income rates + Ordinary income rates
Obamacare 3.8% (max.
43.4%)
50% exclusion, then taxed as
ordinary income. Effective top
rate 16.5% @$231,450+
House plan is significant tax
reduction
Estate tax
Max. 40% after
exemption of $5.49M
(per person)
Repeal. Replace with 20%
tax on unrealized longterm capital gains over
$10mm “exemption."
Repealed, no replacement.
Likely step up in basis repealed as
well, but unstated so far.
Trump and House silent on step-up
in basis. Trump plan ambiguous on
when tax is due.
Gift tax
Max. 40% after
exemption of $5.49M
(per person)
Repeal unstated; judged
unlikely
Repeal unstated; judged likely
Repeal judged unlikely due to
“backstop” function
Generation-skipping tax
Max. 40% after exemption of
$5.49M (per person)
Unstated
Repealed
Dynasty Trust could assume future
reinstatement of estate tax
Alternative Minimum
Tax
28% on an expanded
base of taxable income
Repealed
Repealed
Becomes largely irrelevant given
flatter tax models proposed
Deduction – Charitable
Unlimited subject to
AGI constraints1
Subject to itemized deduc- No cap
tion cap of $200k. No
deduction for appreciated
assets to private foundations.
Deduction – Mortgage
Interest
Allow on first $1M of
mortgage principal1
Subject to itemized deduc- No cap
tion cap of $200k
Deductions – Itemized
Total
No cap, but Pease
limitations and other
constraints apply
Annual cap of $200k
No cap, but no deductions allowed other than charitable &
mortgage
In combination with reduced
deductions, proposals amount
to a “flat” tax
House plan offers a new form of
tax reduction
Appears to be the end of favorable
tax treatment for carried interest
Gifts to private foundations may
shift to donor-advised funds.
TBD whether even the Trump
proposals will ultimately limit
charitable deductions.
Both proposals create a “flat” tax
model. Note loss of state tax deduction in House plan.
1. Also subject to PEASE limitations
Fieldpoint Private 6
2017 Taxes: Strategy Implications on New Proposals
HOUSE REPUBLICAN
PROPOSAL
VEHICLE/PURPOSE
TRUMP PROPOSAL
COMMENTARY
GRAT (Grantor-Retained
Annuity Trust) Transfer
appreciation on assets out
of taxable estate
Less relevant vis-à-vis
repeal of estate tax on
assets, but could serve to
shift capital gains out of
estate to avoid death tax on
unrealized gain
With neither estate nor
cap gains tax at death, less
relevant
Relevance changes but
long-term planning should
consider the future reinstatement of an estate tax
IDGT (Intentionally
Defective Grantor Trust)
Transfer to next-gen without using lifetime exemption; protects future appreciation from gift, estate
and GST tax, as Grantor
pays tax on the income in
the trust
Continued relevance –
shifts appreciation out of
estate, mitigating cap gains
tax at death
With neither estate nor
cap gains tax at death, less
relevant
Relevance may change but
long-term planning should
consider the future reinstatement of an estate tax
CRT (Charitable
Remainder Trust) Gift
into CRT generates income
tax deduction. CRT creates
income stream for you or
benefi­ciary and funds a
chari­table contribution at
end of trust term.
For philanthropic and
tax purposes, continued
relevance. $200K cap on
itemized deductions - is
material to large gifts. No
deduction for gifts of appreciated assets into private
foundations (still allowable
for DAFs).
No cap, no rule change for
private foundations —
loses some impact if no
estate tax
Trump’s $200K deductibility cap is material as it
affects income tax deductions for large gifts including those associated with
large liquidity events
CLAT (Charitable Lead
Annuity Trust) Charitable gift into a grantor
CLAT generates income
tax deduction and funds
charitable payments over
time. At death, “remainder”
passes to beneficiaries.
Continued charitable and
income tax relevance even
with no estate tax and
could serve to shift capital
gains out of estate to avoid
death tax on unrealized
gain. However, $200K
cap on itemized deductions shrinks tax benefit of
“supersized” CLATs.
Continued charitable and
income tax relevance, yet
less compelling with no
estate or cap gains tax at
death
Under Trump proposals
could help avoid tax on unrealized cap gain at death.
Under the House plan a
grantor CLAT, for the
charitably inclined, would
still create meaningful
income tax deductions and
might be a hedge against a
reinstated future estate tax.
FLP (Family Limited
Partnership) Gift of limited partnership interests to
family members. Reduces
estate via IRS-recognized
valuation discounts stemming from loss of control
and marketability of shares.
IRS proposing regs to end
discounts, eliminating this
planning strategy.
Trump silent on proposed
rule change. Remains relevant if estate tax is replaced
by capital gains tax.
Loses much relevance if
no estate or cap gains tax
at death
Too soon to handicap
Dynasty Trust
Gift into trust passes
wealth over multiple generations, free of gift, estate
and generation-skipping
(GST). Also, protected
from divorce, creditors and
other risks.
If estate tax is replaced by
an unrealized cap gains tax,
the DT’s tax advantage is
TBD, but judged likely
within the $10M
exemption
If neither estate nor cap
gains tax, the DT still offers creditor, divorce and
spendthrift protections;
and will play role if/when
estate tax is reinstated.
Expect GST repeal, but no
guarantees.
May still make sense going
forward. If gift tax is repealed, potential reinstatement of an estate tax would
suggest major contribution
to a Dynasty Trust.
Fieldpoint Private 7
COMPLIANCE DISCLOSURE
This material is for informational purposes only and is not intended to be an offer or solicitation to purchase or
sell any security or to employ a specific investment strategy. It is intended solely for the information of those to
whom it is distributed by Field¬point Private. No part of this material may be reproduced or retransmitted in any
manner without prior written permission of Fieldpoint Private. Fieldpoint Private does not represent, warrant or
guarantee that this material is accurate, complete or suitable for any purpose and it should not be used as the sole
basis for investment decisions. The information used in preparing these materials may have been obtained from
public sources. Fieldpoint Private assumes no responsibility for independent verifica¬tion of such information
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Asset allocation models are based on capital market expectations for each classification and segment using a thirty
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