Nov. 8, 2016 marked a seismic shift in America’s political environment. Polls were all but universally off the mark, with a few notable exceptions such as the USC Dornsife/LA Times Presidential Election poll. Most voters and commentators were surprised when Donald J. Trump emerged as the President-Elect.
So how will the incoming administration’s policies affect your financial plan and estate plan?
There is a great deal of uncertainty about whether the goals that President-Elect Trump articulated during his campaign will actually be enacted into law.
For instance, Trump has a tax plan on his campaign’s website. But like most such plans, the final version may bear little resemblance to it. Anything that is proposed by the president in the State of the Union Address in January must be presented to Congress and must be accepted by both the House of Representatives and the Senate before it can be signed into law.
That said, there are three broad areas where changes may be pursued in 2017, said Paul DeLauro, manager of City National Wealth Planning. They include generational “transfer” taxes, income taxes and corporate taxes.
1. Transfer Taxes
President-Elect Trump has proposed repealing the federal estate, gift and generation-skipping transfer taxes. He has proposed replacing the federal estate tax with a modified tax on “capital gains” that would be payable when appreciated inherited assets are sold in the future by the beneficiaries of an estate.
2. Income Taxes
President-Elect Trump has proposed reducing the number of individual income tax brackets to three (12%, 25% and 33%) and maintaining capital gains rates at 0%, 15% and 20%. He has proposed increasing the standard deduction for both individuals and married couples, capping itemized deductions, repealing the individual alternative minimum tax (AMT), and repealing the 0.9% and 3.8% Affordable Care Act surtaxes. With a Republican President, House and Senate, it is probable for tax year 2017 that federal income tax rates will drop, but the extent is unknown. The platforms of both the President-Elect and Congress seemingly coalesce around a desire to lower and/or compress marginal rates.
3. Corporate Taxes
President-Elect Trump has proposed reducing the corporate income tax rate from 35% to 15%. It is unclear whether this means the income tax rate will be lowered for all business entities (i.e., S corporations, partnerships, limited liability companies, sole practitioners) or only C corporations. Until there is more clarity, business owners may want to wait before making a decision to create or change the way they structure their business ownership.
How should you respond to these potential changes? The best advice is to schedule a meeting with your attorney and/or accountant to discuss your particular situation.
“Remember that your tax situation is unique,” DeLauro said. “Only your accountant and tax attorney are in a position to provide you with actionable advice.”
It’s also best to take your time and focus on “what is” rather than “what may be” when it comes to making any major financial decisions.
”Focusing on what someone thinks may happen can often lead to mistakes that are hard to fix,” DeLauro noted.
City National Bank its affiliates and subsidiaries, as a matter of policy, does not give tax, accounting, regulatory or legal advice. Rules in the areas of law, tax, and accounting are subject to change and open to varying interpretations. You should consult with your other advisors on the tax, accounting and legal implications of actions you may take based on any strategies presented taking into account your own particular circumstances.