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In late January 2017, Senator John Thune and Representative Kristi Noem, both from South Dakota, introduced substantially similar bills in the Senate and the House of Representatives, respectively, that would repeal the federal estate tax. Notably, Thune is a senior member of the tax-writing Senate Finance Committee. As of April 5, 2017, the Senate Bill has 35 co-sponsors and the House Bill has 69 co-sponsors including one Democratic representative. The Bills were also supported by over 135 organizations including trade associations and marketing organizations. The initial number of co-sponsors and political support demonstrate the planning and organization that took place prior to the presentation of the B

The Bills seek to repeal portions of the Internal Revenue Code that impose estate and generation- skipping transfer taxes effective for persons who die after the date of enactment. The Bills would not repeal the gift tax or special valuation rules, but would lower the maximum tax rate on taxable gifts exceeding $500,000 to 35 percent. The lifetime gift tax exclusion amount of $5,000,000 (adjusted for inflation) would be maintained. The only difference between the proposed Senate Bill and the proposed House Bill is that the Senate Bill includes a provision which treats all transfers in trust as completed gifts unless the trust is a wholly-owned grantor trust as to the donor or his or her spouse. Neither of the proposed Bills address basis adjustment at death, carryover basis or tax on appreciation at death (e.g., when Canada repealed its death tax, it enacted an appreciation estate tax also known as a capital gains tax at death). 

It should also be noted that estate tax reform has been presented in comprehensive tax reform plans put forth by both President Trump and the Republican majority in the House of Representatives led by Paul Ryan as Speaker. Neither of these plans have been transformed into bills, but both indicate a repeal of the estate tax while failing to address the gift tax. President Trump’s plan gives some indication that capital gains may be taxed at death or, more likely, that there would be carry-over basis. Speaker Ryan’s plan makes no changes to the basis-adjustment rules.

Even if repealed, there is always the prospect of a future reinstatement of the estate tax if the presidency and Congress are later controlled by the Democratic Party. Further, without a “filibuster-proof” majority in the Senate, Republicans likely could only pass tax reform by “reconciliation” which may result in a gradual phase-out and sunset provisions (whereby the repeal would lapse) due to rules about revenue reductions or increases as part of the process of “reconciliation.”

As estate tax laws change, provisions in older documents can become unclear or ineffective in achieving their desired outcomes. Because of the uncertainty involved, many estate planners are building greater flexibility into their clients’ estate plans. Our Estate Planning Department stands ready to assist you in navigating these uncertain waters.