Financial Briefs

As the drumbeat for tax reform grows louder, the chances that the federal estate tax will be repealed increase. Although there are no guarantees, especially in the current political environment, a repeal taking effect by 2018 is a real possibility.

But this doesn't mean estate tax planning should be abandoned—far from it. In fact, if history is any indication, an outright estate tax repeal isn't likely to be permanent.

Take the example of the monumental tax legislation enacted in 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). Under EGGTRA, among other related changes, the estate tax rate was gradually reduced from 55% to 45% while the estate tax exemption rose from $1 million to $3.5 million. Then the estate tax "vanished" just for just one year—2010—before it was scheduled to be reborn in 2011 at 2001 levels via a "sunset" provision.

Subsequently, a higher estate tax exemption was preserved. Indexed for inflation, it's $5.49 million in 2017, with a top 40% estate tax rate. These changes are "permanently" written into the tax code.

Suffice it say that you can't foresee the impact of future presidential and congressional elections. Even if the estate tax is eliminated, it could easily return. The best strategy is to continue estate planning that takes a long-term view.