Advisers say this part of Hillary Clinton's estate-tax plan is worse than the higher rate

Advisers say this part of Hillary Clinton's estate-tax plan is worse than the higher rate
&#8220;This will seriously impact inheritances for many middle- and lower-income Americans,&#8221; said one adviser. <b><i>(More: <a href="//www.investmentnews.com/article/20160922/FREE/160929969/republican-lawmakers-attempt-to-stop-estate-tax-regulation" target="&quot;_blank&quot;" rel="noopener">Republican lawmakers attempt to stop estate-tax regulation</a>)</i></b>
SEP 26, 2016
Democratic presidential nominee Hillary Clinton took another stab at the nation's wealthiest Americans on Thursday, endorsing an increase in the top estate-tax rate — a sharp contrast to her opponent Donald Trump's plan to eliminate the estate tax altogether. But that increased rate is not what concerns financial advisers most. She would set the top tax rate at 65% for estates over $500 million for individuals and $1 billion for married couples, according to the updated plan on her campaign website. This compares to the current highest rate of 40% on estates over $5.45 million per person ($10.9 million per married couple). Ms. Clinton also would set a 50% rate for estates over $10 million and 55% rate for those over $50 million. Before this change, she had supported a top estate-tax rate of 45%. But what's of particular concern to advisers is that she'd also remove aspects of the tax code that people use to make their estates “appear to be worth less than they really are,” according to Ms. Clinton's website. “The real focus of her new estate-tax plan is the elimination of the step-up in basis for all. This will impact a very large number of Americans,” said Victoria Fillet, president of Blueprint Financial Planning. “The raise in the estate tax is primarily focused on the very rich, and they have sophisticated tax planning done by a bank of accountants and will probably not be impacted.” (More: Side-by-side comparison of Clinton, Trump tax plans) When investors get a so-called step-up in basis at death, the inheritors of the assets don't have to pay capital gains tax. For instance, a couple buys a $50,000 house that is worth $500,000 when they die and leave it to their daughter. Today she receives a step-up in value to the current market price, and if she sells at that new market price, there are no tax consequences, Ms. Fillet said. Under Ms. Clinton's plan with no step-up in basis, that daughter would owe capital gains taxes on $450,000, she said. “This will seriously impact inheritances for many middle- and lower-income Americans,” Ms. Fillet said. The step-up in basis applies to any appreciated asset in the estate that are not included in a qualified plan, such as an individual retirement account or a 401(k). (More: Republican lawmakers attempt to stop estate-tax regulation) Charlie Douglas, director of wealth planning at Cedar Rowe Partners, agrees that the loss of step-up in basis would be significant for many. He points out that Republican candidate Donald Trump, who has called for repeal of the estate tax, has been mum on his plans for the step-up, while former candidate Jeb Bush had said he'd support getting rid of the step-up in exchange for eliminating the estate tax. Any estate-tax change would need Congressional approval, a challenge in the current political environment. These two estate-tax components may end up being part of a compromise, Mr. Douglas said. “Some say Hillary's plan would be dead on arrival, but that that's not the point,” he said. “The point is this is about politics and horse-trading, and we'll see if it becomes a tradeoff between her higher estate-tax rates and keeping the step-up.” Russell J. Fishkind, partner and estate-planning lawyer at Saul Ewing, said it’s surprising Ms. Clinton is supporting the elimination of the step-up because that will affect everyone, not just the wealthiest Americans that her other tax increases would impact. “I think her whole estate-tax policy is really a debate piece to highlight the differences between her and Donald Trump,” he said. Targeting the estate-tax rate is only the most recent tactic of having the wealthiest in the nation pay more in taxes. She also backs a cap on itemized deductions and a 4% “fair-share surcharge” on those with incomes over $5 million.

Latest News

Financial advisors, what is your volatility game plan for client management?
Financial advisors, what is your volatility game plan for client management?

With targeted "comfort calls" and strategically automated follow-ups, advisors who leverage their CRM systems effectively can show up when clients need them most.

Trump eyes no taxes for Americans making less than $150k, says Lutnick
Trump eyes no taxes for Americans making less than $150k, says Lutnick

The plan could offer $24,000 in relief for some taxpayers, but experts warn of consequences.

No new trial for convicted GPB Capital executives
No new trial for convicted GPB Capital executives

"I've seen lots of denial in this business but this GPB thing take the cake," says one industry executive.

BlackRock-led deal for Panama Ports draws ire from China
BlackRock-led deal for Panama Ports draws ire from China

Commentary from state-owned publication blasts sale to investor consortium as "spineless groveling," denting Hong Kong-based firm's stock.

Gold soars past $3,000 as Trump turbocharges record rally
Gold soars past $3,000 as Trump turbocharges record rally

Higher interest rates and a strong US dollar, which traditionally act as headwinds, haven't deterred market-stung investors from seeking refuge in the yellow metal.

SPONSORED Beyond the all-in-one: Why specialization is key in wealth tech

In an industry of broad solutions, firms like intelliflo prove 'you just need tools that play well together'

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies