House Votes to Eliminate Estate Tax (the ubiquitous low hanging fruit)
It seems that every new administration or Congress has something to say regarding the federal estate taxation. The main motivator is publicity, since this type of taxation affects few households, a measure in this area would make a great news story, but would have limited actual impact. As many of you probably heard, the Republican controlled House has approved a measure that would eliminate the federal estate tax, which currently kicks in after the exclusion amount of 5.43 million for individuals or at 10.48 million for couples. Cessation of the federal estate tax would remove one important reason for estate planning. However, before you cancel that estate planning appointment, you need to know a few facts.
First, the vote only passed the House and not the Senate. It is anticipated that the Senate will not approve the measure. Even if the bill passes the Senate, the President has vowed to veto it. Even if it is passed, there is no reason to assume that it will not be reinstated at some point in the future, since every administration wants its two cents on the topic.
Second, since the federal tax exclusion is presently so large to begin with, most people engage in estate planning for other reasons. Those reasons, namely: creditor protection, beneficiary planning, state estate tax planning, second marriages, litigation risk and long term care planning, are still around and present a far more practical scenario to most households.
Third, the estate tax provides an important source of tax revenue to state governments, which is why New Jersey estate tax is set at such a low threshold. Those estate taxes will probably never go away, at least as long as the particular states cannot find a reliable source of replacement revenue.
Last, but not least, many estate planning strategies are undertaken to achieve a measure of anonymity and security. Trusts, for example, are a great way to remove potential control and benefit from a recalcitrant or irresponsible family member or his/her significant others. A Trust or a limited liability company or partnership are a great way to control assets from behind the scenes, and will limited or any creditor exposure.
In short, for all intends and purposes, the House vote, while undoubtedly big news, is just government as usual and is pretty meaningless to you at this point.