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Although it’s an election year, not much has been said on main stream media about how the candidates plan to approach changes to the estate tax exemption limit.
Although it’s an election year, not much has been said on main stream media about how the candidates plan to approach changes to the Now, I am willing to admit that the estate tax exemption limit is not the most exciting topic; however, estate planning is a topic that affects everyone and needs to be discussed. I recently read an article in the Wall Street Journal which talked about how Hillary Clinton proposes to levy a sixty-five percent (65%) tax on the largest estates in the country and repeal the step-up in basis. While the sixty-five percent (65%) tax would only affect the most affluent families in the country, her proposal and its tax consequences have the potential to affect everyone.
Currently, the exemption limit is $5.45 million per person and the top estate tax rate is forty percent (40%). If Mrs. Clinton lowers the estate tax exemption limit in order to bring in more tax revenue for the government, what does that mean for small business owners and their estates? What does that mean for family members that would receive the tax benefit associated with a step-up in basis?
According to the article, such a change will prohibit small business owners from passing down a family-owned business because the business owner’s beneficiaries will no longer receive a step-up in basis. Without a step-up in basis, the beneficiaries could potentially pay astronomical capital gains taxes should they ever decide the sell the business. The same will be true for anyone wishing to leave a highly appreciated asset, like a house, to a beneficiary.
To be fair, the article goes on to state that under this proposal there would be “careful protections and flexibility for small and closely held business, farms and homes, and personal property and family heirlooms.” However, it is unclear what those protections would be or how they would work.
All of this being said, it is impossible to know what will happen on November 8th and what exactly that outcome will mean for our country. It does not matter if you are a Republican or a Democrat, a Trump supporter or a Clinton supporter, one thing is guaranteed: there will be change no matter who is elected.
The good news is that everyone has the ability to control how drastically that change will impact their estate, their business, and their family by taking a minute to think about practical estate planning goals and objectives. As I said, it’s not the most exciting topic for discussion, but planning for the future no matter the outcome this fall is something everyone can do.
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