Any time there’s a changing of the guard in the White House, it pays to sit up and take notice, especially where economic policy is concerned. Among his other proposals, President-elect Trump has outlined a new tax plan that will affect virtually all taxpayers. The benefits may prove to be particularly advantageous for wealthier Americans in terms of building wealth.

Creating a Financial Legacy Under the Trump Tax Plan

Here are the provisions that would primarily impact those with a higher net worth.

1. Death to the 'death tax'

Estate tax is assessed when you transfer property or other assets to your heirs at your death. This tax maxes out at 40%. Currently, the IRS allows single taxpayers to exempt $5,450,000 in assets from the estate tax. For 2017, the exclusion limit is $5,490,000. Those amounts are doubled for married couples.

Trump’s tax initiative would put an end to the estate tax entirely. His plan also suggests that capital gains held until death and valued over $10 million will be subject in a way that exempts small businesses and family farms. What this ultimately boils down to is that the wealthy would only have to pay taxes on capital gains valued at more than $10 million if those assets were sold. (See: Estate Taxes: Who Pays What? And How Much?)

That could be highly beneficial to investors who would like to see their wealth stay in the family after they’re gone. If you hold income-producing assets, such as real estate or dividend stocks, your children or grandchildren could continue drawing on that income without having to sell them. In turn, they’d be able to avoid the estate tax for as long as they retain ownership.

2. Reduced tax brackets

Another key provision of the Trump tax plan centers on how tax brackets would be structured going forward. Rather than having seven tax brackets, there would be just three, with incomes being taxed at a rate of 12%, 25% or 33%.

Married couples filing a joint return with more than $225,000 in income and single filers with incomes above $112,500 would pay the highest tax rate. Currently, the highest tax rate is 39.6%. That rate is exclusive to single tax filers earning more than $415,050 and married couples filing jointly who earn $466,950 or more.

A restructuring of the tax brackets may push some upper-middle class earners into a higher tax bracket, but it would ultimately reduce the marginal tax rate for those whose incomes top $400,000. There is a catch, however, since Trump’s plan would cap itemized deductions at $100,000 for single filers and $200,000 for married couples. (See: Trump's Upper-Middle Class Tax Increase.) Single parents may also be affected negatively (see Trump's Tax Plan Would Hit Single Parents the Hardest).

How Much Will the Wealthy Benefit?

The Trump tax plan has come under close scrutiny from various groups, but the consensus is that the wealthy will come out furthest ahead.

An analysis from Citizens for Tax Justice, for example, estimates that Americans in the 1% would receive an average tax break equivalent to 5.1% of their income, or $88,000. That’s based on an average annual income of $1.7 million. The Tax Foundation suggests that after-tax incomes for the top 1% of earners could increase by as much as 16%.

In either scenario, that’s a substantial amount of money that would be diverted from Uncle Sam and directed elsewhere that could encourage additional wealth-building.

Let’s say, for example, that an individual invested that yearly $88,000 in saved tax in a taxable account for 20 years. If the account earned an average annual return of 6%, it would grow to approximately $3.7 million, assuming a 3% inflation rate. That’s a significant bolster to the bottom line.

The Bottom Line

It may be months before Trump’s tax plans are finalized, and for now, Americans are left to speculate as to what changes will actually take effect – and when. In the meantime, it may be wise to review your investments, deductions and estate plan to ensure that you’re achieving maximum tax efficiency.Things to Do Now to Plan for a Trump Tax Cut can help.

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