Thinking Ahead: Potential Federal Estate Tax Changes and Your Wealth Transfer Plans

To be prepared if and when changes come, maintain a flexible estate planning strategy.  

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Of the many policy proposals being discussed, abolishing the federal estate tax and the generation-skipping transfer tax could be among the most significant for high-net-worth individuals. But what does that mean in practical terms? From your gifting strategy to how you title assets, which, if any, of your estate planning strategies should you consider revising and how? Jeffrey E. Quijano, CFP®, Senior Wealth Planning Strategist at Wells Fargo Private Bank, suggests ways to approach the situation when so much is still unknown.

Wait and see
First, Quijano stresses that these proposals are still in the planning stage and that you shouldn't rush to make any changes to your estate plan. As with any governmental policy, it's likely that even if something does get passed, the actual guidelines could change significantly during negotiations in the House and Senate. Instead, planning is all about flexibility. 

"It's all about 'wait and see,'" says Quijano. "The proposals wouldn't be modifications to the prevailing system but rather a paradigm shift, the details of which we can't really pin down to any degree of certainty yet. Our overarching theme is that high-net-worth individuals should not do anything reactive to the proposed repeal." 

In this regard, Quijano recommends avoiding implementing plans that result in payment of the tax when there's a chance it may be abolished. Because there is a possibility that transfer taxes will be repealed, it generally will not make sense to trigger the payment of gift tax when the tax may be eliminated altogether at some point during the tenure of the current administration. 

"High-net-worth individuals should not do anything reactive to the proposed repeal." — Jeffrey E. Quijano, CFP®, Senior Wealth Planning Strategist, Wells Fargo Private Bank

There are also other considerations beyond taxes. This is especially true in estate planning strategies. 

Many people may believe that trusts have less appeal as part of their wealth transfer strategy – partly due to the expected tax changes and partly due to "portability" (which allows a surviving spouse to take advantage of any portion of the federal estate tax exemption not utilized by the deceased spouse in his or her own estate documents). However, trusts remain a viable tool, depending on your goals, and may provide asset and marital-property protection as well as benefits for heirs who inherit assets.
"As is always the case, for those individuals and families that utilize revocable living trusts in their estate planning, titling assets in the name of the trust remains as important as ever to help avoid probate, maintain privacy, and provide efficient management of assets in the event of incapacity of a grantor," Quijano says. 

Prepare for change
So what steps can you take to be better prepared if and when changes come? Quijano suggests introducing a trust protector to trust documents that do not already include them. A trust protector is an independent person granted administrative powers to do things like change the situs (location) of a trust and remove and appoint a trustee, helping trusts to respond to changes in family dynamics and tax laws in the future.

"As always," advises Quijano, "high-net-worth individuals should work with their advisors to establish flexible estate planning documents that help achieve client goals and permit account adjustments in response to any potential tax law changes, now or in the future."

Nell McShane Wulfhart is a freelance writer based in Montevideo, Uruguay.

Image by iStock

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Wells Fargo Wealth Planning Center, part of Wells Fargo Private Bank, provides wealth and financial planning services through Wells Fargo Bank, N.A. and its various affiliates and subsidiaries.

Wells Fargo & Company and its affiliates do not provide legal advice. Wells Fargo Advisors is not a legal or tax advisor. Please consult your tax or legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your taxes are prepared.

All estate planning services are provided with the participation of your personal attorney, who should review all such material.

This information is provided for educational and illustrative purposes only.


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