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Published On: Mon, Oct 31st, 2016

How Will Hillary Clinton’s Proposed Estate Tax Plan Impact You?

Estate taxes are a major concern for many people, and the issue of raising or lowering estate taxes has become a significant discussion point during this political season. If you have a particularly large estate that is likely to be in the millions, what do you need to know about Hillary Clinton’s proposed estate tax plan when you begin thinking about estate planning? And if Clinton is elected, what methods can you use to reduce or avoid paying estate taxes? Given that the presidential election is coming up quite quickly, it is important to understand how Clinton’s proposal could change the way that certain Americans pay estate taxes.

photo Alina Ku-Ku via Shutterstock

photo Alina Ku-Ku via Shutterstock

Plans to Raise Estate Taxes for Wealthy Americans

According to a recent article in The Wall Street Journal, Hillary Clinton has proposed a 65 percent estate tax rate on particularly large estates, which would make it much more difficult for certain wealthy Americans to keep their money within their families. Initially, that article pointed out that the Clinton campaign proposed a 45 percent “top rate” estate tax. However, more recently the campaign announced higher estate tax rates as follows:

  • 50 percent estate tax rate on estates totaling more than $10 million per person;
  • 55 percent estate tax rate starting at estates of $50 million per person; and
  • 65 percent estate tax rate for estates totaling more than $500 million per person or more than $1 billion for married couples.

How many estates could be impacted by that 65 percent estate tax? In the year 2014, according to the article, the Internal Revenue Service (IRS) reported that only 223 estates had a gross value of more than $50 million. If such a plan is put into place, it would become the highest estate tax seen in the U.S. since 1981. Currently, the highest estate tax rate is 40 percent, even for estates totaling $50 million or more, and “the first $5.45 million a person is exempt from tax,” The Wall Street Journal explains.

If such a plan does take effect, however, many congressional representatives are concerned about the future of family-owned businesses and keeping those companies in the family through estate planning. According to Rep. Kevin Brady, who is chairman of the House Ways and Means Committee, “it will stop family owned businesses—including women and minority-owned businesses—from being passed down to their children and grandchildren.”

Careful Estate Planning Can Help You to Reduce Estate Taxes

If you are among those who may be subject to a higher tax rate if Clinton’s plan becomes a reality in the near future, you likely are thinking about ways to avoid paying estate taxes or ways to reduce estate taxes. What can you do in the present to ensure that your heirs are properly cared for in the future? An article in U.S. News & World Report recommends taking some of the following steps to help reduce your estate taxes:

  • Ensure that you have a valid will. Although most people who are concerned about estate taxes and are likely to leave large estates to their beneficiaries already will have drawn up a will, it is important to understand that, without a will, beneficiaries can end up paying large bills as a result of your estate being divided in probate court.
  • Name beneficiaries for assets that will not be distributed through a will. Assets such as life insurance policies and certain retirement funds will not be disbursed through your will. Instead, these accounts or policies require you to name beneficiaries.
  • Set up a trust (or trusts). There are many different kinds of trusts that can help to reduce estate taxes that must be paid, such as an irrevocable life insurance trust (ILIT), a qualified personal residence trust (QPRT), and a charitable remainder trust (CRT). These types of trusts, in addition to others, can greatly reduce the estate tax for which your beneficiaries will be responsible. Depending upon the type of trust, the assets held within it might not be subject to an estate tax at all.
  • Create a limited liability company (LLC) or a family limited partnership (FLP). If you know that you want your family business to stay in the family, then you can set up an LLC or FLP now, which will allow you to transfer assets during your lifetime while still retaining some control over them.
  • Gift your assets during your lifetime. One of the easiest ways to avoid estate taxes is by gifting your assets to your intended beneficiaries during your lifetime. Each year, the IRS permits individuals to give gifts of up to $14,000 per person, and the recipient does not have to pay taxes on the gift.

Work with an Experienced Estate Planning Lawyer

Working with an estate planning lawyer is the best way to ensure that you have taken into account the best options for reducing or avoiding estate taxes. Your estate planning attorney can discuss the tips we mentioned above, as well as other options for limited the burden associated with estate taxes.

Author: Jacob Maslow

On the DISPATCH: Headlines  Local  Opinion

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