President Obama’s State of the Union address in January revealed plans to eliminate the “step-up” provision in the capital gains tax. This has caused all estate planning attorneys to be on a state of high alert. If congress chooses to enact this proposal, the new tax law could drastically alter the way high net worth AND average net worth families plan for their future.
An article in WealthManagement.com entitled “Is The ‘Step-Up’ Stepping Down?” delves into the technicalities of the step-up basis and how new provisions would affect trust planning.
Simply put, current laws reduce the amount heirs might pay in a capital gains tax. President Obama’s plan, however, would increase that amount. The plan would aim to close a “trust loop-hole” that he argues saves the rich from taxes they should fairly pay.
The WealthManagement.com article offers a fair counterpoint. Instead of preventing the wealthy from avoiding paying capital gains taxes, this would only increase the number of ALL families using trusts to avoid these taxes. As trusts are a means to transfer assets easily upon death and reduce estate taxes, more families of modest wealth would be creating their own trusts. And for the ultra-wealthy, it would be an opportunity to only explore more creative estate planning tools for which to protect their assets.
It’s an interesting lesson on the economy of taxation and consumer reaction. We can only wait and watch to see how congress receives the plan. To revisit your own plan and anticipate any new changes in tax law, consult with your estate planning or probate attorney.
The attorneys and team at Nickerson Law Group help families with estate planning, probate, guardianship, and special needs trust planning in Austin, Cedar Park, Round Rock, Georgetown, Lakeway, Bee Cave, Dripping Springs and the central Texas area. For more information and to learn about our firm, visit Nickerson Law Group’s website.
Reference: WealthManagement.com (February 4, 2015) “Is The ‘Step-Up’ Stepping Down?”