Potential Estate Tax Changes: Bonus Exemption, Possible Repeal, and What To Do Now in Light of Great Uncertainty
Proposals have been made to extend all 2017 tax cuts, including the bonus estate, gift, and GST tax exemptions. There also has been a proposal to repeal the federal estate tax (but not the gift tax) and yet continue to permit the income tax-free step-up in basis at death. Federal estate tax repeal would radically change estate planning, but it won’t mean action is not necessary. Many wills and trusts use formulas based on tax definitions to allocate wealth to the intended heirs. Without a federal estate tax, those formulas may work in unanticipated ways that could be a disaster. And new formulas for disposition will have to be developed. Whether it is status quo (exemption reduced in 2026), extension of bonus exemption, or full federal estate tax repeal (and the scenarios for that might be quite different), practitioners need to know how to respond. Also, note that the retention of the gift tax may inhibit some from making transfers during lifetime to or for family members.
