The initial shock over Donald Trump’s stunning victory in the Presidential election is rapidly giving way to questions regarding his foreign and economic policies and how they will impact the U.S. economy and international relations. One of the major changes that Trump has promised is the repeal of the estate tax, which is a tax on the amount of money and assets that are passed to heirs that exceeds a certain limit. More recently, South Dakota Sen. John Thune made it clear one of his priorities in 2017 will be to repeal the estate tax.

This tax can be quite high for large estates, as the tax rates start at 40% on assets in excess of $5.45 million. This means that wealthy taxpayers could have a much lower tax bill when their executors file their final tax returns. But can the tax really be repealed?


Although Trump will be backed by a Republican majority in both the House and the Senate, the simple majority in the latter group is not enough to achieve closure on any debate on a given issue. Republicans will need a majority of three-fifths of all senators to do that, which comes to 60 votes. Richard Behrendt, director of estate planning at Annex Wealth Management, told InvestmentNews that, “It's not a slam dunk and on Jan. 20 he'll be able to repeal the estate tax. It's more complicated than that. Yes, he has the White House, the House and the Senate, but the big wild card is you need the 60-vote super majority in the Senate.” (For more, see: Why Donald Trump May Never Pay Federal Income Tax Again.)

This factor is what prevented George W. Bush from repealing the estate tax in 2006. The Republican majority in the Senate fell short of the necessary majority by three votes. A similar measure also failed for the same reason in 2002.

Another factor that arises from the repeal of the estate tax is the validity of proposed regulations that the Treasury Department issued regarding the valuation of business interests that are passed on to heirs. Estate planners have been assigning valuation discounts of as much as 40% on certain types of assets that have limited liquidity. The Treasury Department has proposed a curb on this practice for all property transfers that occur within three years of the death of the taxpayer. This issue will effectively become irrelevant if Trump repeals the estate tax, as there will be no need to assign valuation discounts that can reduce gift and estate taxes. (For more, see: This Is How Donald Trump Actually Got Rich.)

Uphill Battle

But Trump faces an uphill battle when it comes to repealing the estate tax, because there are very few moderates in the Senate at this point, and the vast majority of the Democrats view the repeal of the estate tax as another tax break for the rich. It is possible that Trump can accomplish this goal, but he will most likely need to make concessions in other areas if he wants to be successful. If Hillary Clinton had been elected, her plan was to not only raise the estate tax, but also to eliminate the step-up in cost basis of appreciated assets that are passed on to heirs. This would mean that heirs would pay capital gains taxes on these assets in addition to estate taxes. Democrats who supported this measure will be highly unlikely to vote for a repeal of the estate tax.

The Bottom Line

Time will tell whether Trump will be successful in his effort to repeal the estate tax. Many Democrats may feel like the issue isn’t worth debating, given the small number of taxpayers that owe estate tax. There were less than 5,000 estates that owed federal estate tax in 2015 that generated a combined $17 billion in revenue. And even if Trump is able to accomplish his goal, the estate tax may be reinstituted again at some point in the future. Financial planners and taxpayers will need to stay prepared to make changes in their estate planning on an ongoing basis depending upon the current legislation. (For more, see also: Donald Trump's Economic Policies.)

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