September 26, 2016
Two news stories this week might prompt a review of your estate plan. The first relates to the announcement by Democratic presidential candidate Hillary Clinton of her proposed tax plan, which clearly showed how her administration intends to raise revenue. Under the Clinton Plan, the low hanging tax fruit is the wealth that families have saved over their lives. Instead of increasing taxes on income, Clinton’s proposal involves a massive change in the estate tax, often referred to as the “Death Tax”.
Under current regulations, a husband and wife generally have a combined estate tax allowance of $10.9 million, with any estate valued above this figure being taxed at 40% upon their death. The Clinton plan would reduce the combined allowance from $10.9 million to $7.0 million. In addition, the tax rate would rise to at least 45%, and, depending on the size of the estate, could go as high as 65%!
The proposed 65% estate tax rate would be the highest since 1981. Many political news sources identified this issue as one where the two candidates differ the most. A common complaint among my clients, both Democrat and Republican, is that it is unfair to penalize a prudent family at the time of death. Many people with substantial assets own businesses, farm land, timber land and other illiquid assets. If the Clinton tax proposal becomes reality, I expect that estate planning lawyers and advisors will see a massive spike in business as families reevaluate their situations.
The second story was highlighted by an interesting full page ad taken out in the Wall Street Journal on Thursday. The Smithsonian Institute used the ad to promote its latest addition in Washington, the National Museum of African American History. The new museum has been chronicled in many media sources, and is a testament to the history of the African American experience in the US.
The ad was a thank you note to the large number of substantial contributors that helped cover some of the expense of building the museum. In what is typical of these types of announcements, the donors were segmented by the size of their contribution. The level of generosity of wealthy individuals, families, and corporations was clear to see. I always wonder about these types of ads. Are they meant to acknowledge those that gave, or to raise questions about the names that are not on the list?
What was obvious from the list was the large number of family foundations that contributed to the new museum. If Hillary Clinton’s Death Tax proposal gets enacted, I suspect more and more families will start to consider establishing their own family foundations rather than have their hard earned assets taken by the IRS.