As summer comes to a close, there continues to be a great deal of discussion among lawmakers in Washington, D.C. about potential changes to the U.S. tax code. However, given the recent struggles to unify the Republican congressional majority around a health care bill, it's not certain whether they can come together on a tax plan that will satisfy everyone involved.

The uncertainty around what exactly a bill might include, when it might come into effect and how permanent it will be can make planning seem especially daunting. However, we can make an effort to understand the possibilities that lay ahead and what their implications might be. Here are some of the most prominent proposals being considered:

1

Repealing the Federal Estate Tax

While Republicans have made clear that they intend to repeal the estate tax entirely, they've said little about what they would replace it with — or whether they would replace it at all. Options include: Continuing the step-up in tax basis for inheritors; implementing a carryover tax basis system; or requiring that capital gains be paid upon death.

2

Eliminating Itemized Deductions

Both President Trump and House Republicans have proposed eliminating all itemized deductions, except for the mortgage interest deduction and deductions for charitable contributions. If enacted, this provision would have an impact on taxpayers in high income tax states, and would potentially offset some of the benefits of the lower overall federal income tax rate.

3

Reducing Corporate Tax Rates

President Trump's most recent proposal calls for a 15% top tax rate for corporations and pass-through entities such as partnerships. That is much less than the top income tax rate for individuals, and there is concern that this could spur individuals to form pass-through entities in order to take advantage of the tax break.

4

Maintaining Discounts for Family Limited Partnerships

Prior to the election, the U.S. Treasury proposed new regulations that aimed to eliminate valuation discounts for family limited partnerships and family LLCs. However, the Treasury received more than 10,000 comments against the proposed regulations, and President Trump's executive orders have all but ensured that they will not be enacted.

Don't Let Uncertainty Paralyze Planning
Factor in the Possibility of a Carryover Basis System

Families should consider giving executors the ability to make funding decisions based on any changes to tax laws, and allow trust protectors to swap assets in and out of trusts to maximize their tax basis.

Re-Evaluate Charitable Bequests

If the estate tax is repealed, charitable bequests will no longer be beneficial from a tax planning perspective. Families should review their estate plans to make certain they still make sense, even if there's no estate tax.

Avoid Making Large Gifts

We recommend temporarily holding back from making large individual gifts, which run the risk of incurring significant gift taxes.

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