Considering how changes to legislation have gone so far in President Trump’s tenure, passage of any legislation that would see the repeal of the Estate Tax seems less likely than it did on November 9th. As such, practitioners and clients alike may be questioning their next moves as they relate to Estate Tax. As a response to the possibility that Estate Tax repeal may be left out of any tax reform implemented this year, one Republican law maker has proposed a tweak of the existing regime.
As it stands now, and with a few exceptions, any estate tax owed as a result of one’s passing is due within 9 months of the date of death (or within 15 months of the date of death upon the request for an automatic 6-month extension). This leaves many administrators and attorneys scrambling for liquidity to pay the estate tax, many times requiring the liquidation of assets that incurred estate tax in the first place.
Representative Andy Harris (R-Md.) first introduced the American Solution for Simplifying the Estate Tax (ASSET) Act in 2014 and again in 2015, but his proposal did not carry much support. The main idea behind the ASSET Act is that it enables taxpayers to pay a percentage of AGI each year in lieu of paying the lump sum Estate or Gift tax. Previous iterations of the ASSET Act would have the payments cease and the tax liability would be deemed completely paid off after 7 years of qualified payments.
Opponents of the ASSET Act say that it could potentially foster abuse and evasion through elective adjustments of the taxpayer’s AGI, and therefore the amount of tax the taxpayer would pay under the ASSET Act. By the same token, in the absence of complete Estate Tax repeal, an alternative like the ASSET Act could afford taxpayers and beneficiaries much more flexibility in making estate tax payments. This would be especially true with the succession of family businesses to younger generations, where liquidity may be an issue for the business but valuation of the business exceeds the available exemption amounts.
Representative Andy Harris says he is waiting to see where tax reform is headed, but may re-introduce the ASSET Act as early as this summer. As always, we will keep an eye on the development of tax reform, and any possible alternative tax reform legislation put forth by legislators. If you have any questions regarding the current Estate and Gift Tax laws, please do not hesitate to call me at (772) 234-5500 or email me at firstname.lastname@example.org.