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One Year In: Strategic Estate Planning in Uncertain Times

No matter what the future holds, you should always focus on what your clients can control.

With the number of legislative days remaining in 2017 rapidly dwindling, many Americans are waiting with bated breath to find out if President Trump’s proposed tax reform plan will change the tax landscape. Any dramatic changes to tax policy, such as a repeal of the estate tax, will require revisiting your clients’ estate plans.
 
The Trump administration and Congressional Republicans have been busy with many issues, but, as of now, there have not been any significant legislative enactments. Proposals ranging from tax cuts or reform, immigration reform, healthcare reform, and more still loom large.
 
If Trump achieves the goals laid out in the September 2017 Unified Framework for Fixing Our Broken Tax Code, it will create a system with three tax brackets rather than seven. It would also completely eliminate estate and generation-skipping transfer taxes, while evidently retaining the gift tax. Mortgage interest deductions would get an overhaul, and most itemized deductions would disappear. The overall thrust of the proposal is towards simplification of the tax laws.
 
Yes, these are all very substantial changes. And in addition to the uncertainty about how these changes would impact your clients, it also still remains to be seen whether this proposal will become law or not. A Politico poll indicated that popular approval for these proposed tax cuts hovers at 48 percent. Goldman Sachs analysts seem to think this proposal will be pushed through, but not with overwhelming confidence. They’re estimating that there is a 65 percent chance it will come together in 2018.
 
So we find ourselves with two primary considerations: The tax proposal would mean drastic changes, and no one is certain when, or even if, it will go into effect.
 
Are your clients in standby mode?

Your clients may think that their best course of action is to hold tight until the political landscape becomes clear. This is an attitude that could cost them. Now is not the time to wait for news from the government before taking action.
 
Uncertainty about tax and healthcare policies can lead your clients to steer clear of planning altogether and even revising existing plans because of the perception that the rules of the game might change so substantially that any plan done now will be wasted or rendered moot later. But a “wait and see” approach can spell disaster for a client’s family if they are caught unprepared.
 
Modern estate planning is carefully designed to be very flexible so it can adapt to changes. We can even include mechanisms to deal with many of the changes that might happen under some of the Trump tax and healthcare proposals. Some flexibility tools include trust protectors, trust decanting provisions, and broad powers and discretion for trustees so they can adapt their administration of the trust to legal, investment and tax circumstances as they occur.
 
Plus, the reasons for estate planning are not only those related to tax planning. The most important reasons for planning or revising existing planning have less to do with taxes and more to do with the following client needs:

  • Ensuring continuity: Estate planning keeps the bigger picture of family businesses, wealth and legacy in focus and provides a structure that supports long-term family wealth goals.
  • Ensuring private settlement of family affairs: Using a will or doing no planning virtually assures a public probate process, whereas trust-based estate planning can ensure privacy—a valuable benefit for many families.
  • Reducing settlement costs and time: Trusts are often less expensive and less time-consuming than probating a will or administering an intestate estate.
  • Avoiding living probate: Regardless of shifting tax policies, clients need to protect themselves from guardianship or conservatorship (also known as living probate) if they become incapacitated and are unable to make their own financial and healthcare decisions.
  • Providing long-term asset management: Estate planning offers the opportunity to preserve and protect assets for surviving spouses, children, grandchildren, and other intended beneficiaries.

No matter what the future holds, you should always focus on what your clients can control. Although changes to tax rates, deductions, exemptions, and so on may impact how much tax must be paid in any given year, there are no credible proposals that do away with taxes altogether. All clients must have a plan in place to ensure their financial legacy avoids as much tax while also achieving their other (often more important) estate planning goals.
 
Your clients might be coming to you asking how they should move forward in uncertain times. The answer is to help them plan for the situation as it exists now and to utilize modern flexibility tools to ensure their plans can bend, but not break, based on what happens next.

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