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I Wish I had a Crystal Ball


By Charles M. Lax

It’s tough being a tax advisor. Not only do your clients expect you to help them minimize current taxes, they also expect you to formulate tax strategies to minimize future taxes. When the rules are known, it’s a difficult proposition, but when the rules are likely to change, you need a crystal ball. As our new President begins his administration, there is a likelihood that significant changes will occur. Backed by a Republican controlled Congress, many elements of the President’s tax plan will receive favorable consideration.

Unfortunately, there is no certainty. President Trump’s tax proposals differ from Paul Ryan’s tax plan. The Democratic minority has a decidedly different agenda and could become the majority party in four years (or at some other time in the future) and reverse it all. There is even the overriding concern that the increasing budget deficits could affect the process. Lowering tax brackets, capping itemized deductions, increasing standard deductions, eliminating alternative minimum taxes, and eliminating federal, estate, and gift taxes will bring about “new conventional wisdoms” for tax advisors. Lower current tax rates will reduce the need for tax deferrals. Capping itemized deductions and increasing the standard deduction will impact decisions on charitable contributions, purchasing and financing new homes, and even where to live based upon state and local income and property taxes.

The possible elimination of the federal estate tax is one example where there will be a profound effect on certain clients. Gifting, shifting future appreciation of assets, establishing irrevocable trusts, and purchasing life insurance are all examples of strategies that have been used to deal with the current federal estate tax structure. If eliminated, many taxpayers/clients will be motivated to change the course and forego conventional estate planning techniques. But does this even make sense when there is a possibility that the federal estate tax could be reinstated by a new administration and a change in control of the legislative process? While this may seem logical in the short term, it might not when the pendulum swings back and our clients/taxpayers are older, wealthier, sicker, etc. than they were when the plans were formulated. As I said, I wish I had a crystal ball!