Personal Injury, Probate, Employment, & Complex Litigation


Current Estate Taxes and How They Can Change With This Election

Because 2016 is an election year, many topics are brought up. One with interesting implications is the proposal on how to handle the estate tax. Assuming there are no modifying factors, the exclusion amount for estate tax has gone from $1,500,000 in 2004 to $5,450,000 in 2016. What the exclusion amount means is that you are allowed to pass property totaling the exclusion amount before any estate tax is assessed. The federal government also allows a married spouse to claim any unused exclusion amount to the total of $10,000,000 for a combined estate in 2016. After the exclusion amount is passed there is a flat tax of 40%. There is no California estate tax.

What the two presidential candidates propose for the change in estate taxes couldn’t be any more different. Because Donald Trump is a billionaire, I will use his estate as an example of what affect their proposed tax plan would have and will assume his estate will be subject to California law.

Donald Trump vacillates in what his net worth is, he claims it is anywhere from $10,000,000,000 to $13,000,000,000. However, for purposes of this hypothetical, I will use the Forbes determination of what his net worth is: $3,700,000,000.

Under the current estate plan tax structure Donald Trump’s estate would pay $1,477,820,000 in estate tax. That means that the estate would be left with $2,222,180,000 to distribute to his heirs.

Hillary Clinton is proposing several different revisions. She proposes reducing the exclusion amount to $3,500,000 and introducing a progressive estate tax, like the US has for federal taxes. The proposed tax rates are 45% for anything between $3,500,000 to $10,000,000, a 50% tax rate for anything between $10,000,000 and $50,000,000, a 55% tax rate for anything between $50,000,000 and $500,0000, and finally a tax rate of 65% for any amount over $500,000,000. What this would mean is that Donald Trump’s estate would have to pay $2,348,150,000 with $1,351,850,000 left to distribute to his heirs. This is a $870,330,000 estate tax increase than what the estate’s tax burden would be under the current tax code and amounts to a 58.89% increase in the estate’s tax obligation.

Donald Trump’s estate tax proposal is to eliminate it entirely. This would save his estate $1,477,820,000 when compared to the current estate tax structure and would be a 100% decrease in the estate’s tax obligation.

Keep in mind that this analysis does not go into whether he or Melania would claim their spouses $5,450,000 estate tax exclusion as that would require intimate details of their financial workings.

Additionally, this hypothetical is illustrative of how large of an affect an estate tax change can have on incredibly wealthy families, but neither candidate’s proposals would affect the large majority of American working families.