January 2017 • Jeff Schlegel
Death and taxes are the ultimate in unavoidability in our lifetimes, so it’s no wonder that many people intensely despise the concept of combining them in the form of the estate tax. But with the election of Donald Trump as U.S. president, will he carry through on his vow to bring death to the death tax? Better yet, should he? While tax attorney Martin Shenkman is no fan of the tax, he had much to say on the topic during a recent webinar he hosted on how to make sense of the potential changes in tax code and how that might affect estate planning for clients. In a follow-up interview, he offered a philosophical take on the merits—or demerits—of abolishing the estate tax. “I think there’s a chance he [Trump] will repeal the whole thing,” said Shenkman, whose namesake firm in Jersey City, N.J., and New York City focuses on estate and tax planning for high-net-worth individuals, closely held businesses and real estate professionals. “I think the tax has become so complicated and costly to administer that maybe they will repeal it. And if they use the capital gains tax on death at 20%, like the Canadian system, it seems that it would be simpler and maybe they can raise a fair amount of revenue from that.” Along with talk about abolishing the estate tax, there’s also speculation about the fate of the gift and GST (generation-skipping transfer) taxes. “I think it’s good to address all of the transfers—the estate, the gift and the GST—at one time,” Shenkman said. The gift, estate and GST taxes are complicated and costly to administer, and are viewed negatively. That’s all a fact. They raise less than 1% of the federal revenue, so how significant are they? “Would IRS resources be better used administering the income tax rather than being diverted to these complex taxes?” he continued. “It’s my understanding that the estate tax was enacted not only to raise revenue, though it’s not raising a lot, but also to try to minimize the concentration of wealth in our country. That was a social purpose to create these transfer taxes.” The real question, Shenkman added, is have they contributed to that? Certainly, news stories abound about the growing wealth gap in the U.S. “Would the situation be worse if we didn’t have the estate tax?” he asked. “I haven’t seen any data that suggests either way whether the estate tax has mitigated wealth concentration in our country. If it hasn’t done that, and it’s so complicated and hated, and it doesn’t raise a lot of revenue, does it make sense to keep it? The right decision is to also evaluate whether they’ve accomplished that social purpose.” Meanwhile, Shenkman’s clients—along with the clients of many financial advisors—don’t know what to make of the potential changes in store for the tax code. “I’m trying to be proactive with my clients,” he said. “In my webinar I went through a half-dozen different scenarios and then tried to predict what we might want to do. There’s no reason to stop planning because of this uncertainty if the end result of the planning is to get assets in a better place than they are now regardless of the tax. The most important thing for advisors to do is reach out to their clients and engage them in conversation.”
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