president-elect donald trump made several big promises during his campaign<u+2014>among them cutting taxes for millions of americans and eliminating estate taxes. but promises on the campaign trail may differ from what mr. trump is able to accomplish once he<u+2019>s in office. he may need to make changes to his tax plan in order to please members of his own party and democrats in congress, or he may focus on other priorities or soften his pre-election stances on the issues. while the landscape may not change overnight, some estate-planning lawyers are making moves now to help position their clients in expectation of a variety of possible outcomes. wsj wealth adviser spoke with some of them about the steps they may be taking before year-end: if you donate cash under current law, you may deduct up to 50% of your adjusted gross income for the tax year you gave the donation. and if you give more than 50%, the excess may be carried forward up to five years. mr. trump<u+2019>s tax plan could put a severe crimp in the deduction for donations. his plan includes a provision that limits individuals<u+2019> itemized deductions to $100,000 a year or $200,000 for joint returns. (yes, mr. trump<u+2019>s proposed limit applies to all itemized deductions including charitable deductions.) these limits may significantly hinder wealthy individuals<u+2019> use of the charitable deduction, says carlyn mccaffrey, a partner at the law firm of mcdermott will & emery llp in new york. to position for such a move, ms. mccaffrey suggests those planning to make large charitable donations over the next several years consider accelerating those gifts into 2016. this way, you would lock in several years of deductions. think twice before you sell your business or certain appreciated assets this year. the investment and business income of individuals is now subject to a tax rate as high as 43.4%, including the 3.8% tax on net investment income. mr. trump<u+2019>s plan would decrease that top tax rate to 33%. so if you<u+2019>re contemplating a transaction that would result in the recognition of substantial income, such as the sale of appreciated assets, you might want to consider deferring the transaction until 2017, says ms. mccaffrey. until the election, there were many concerns that valuation-discount planning (a common technique the wealthy use to transfer interests in family businesses at a discount to save on taxes) might go away under regulations that were recently proposed by the internal revenue service. the proposed regulations would make it harder for wealthy people to minimize estate and gift taxes on asset transfers to heirs. in turn, many estate planners had been urging clients to take advantage of these discounts this year before the regulations came online. estate planners say some of those concerns may have lessened now that mr. trump has been elected. if there is no estate tax, wealthy individuals may not have as much need to reduce the size of their estate. mr. trump<u+2019>s plan would impose income taxes on the capital gains of assets held at death<u+2014>beyond an exemption of about $5 million per person or $10 million per couple, however. stephen breitstone, vice chairman and head of the private wealth and taxation group at meltzer, lippe, goldstein & breitstone llp in mineola, n.y., is cautious but is telling some clients to go ahead with any transfers they were planning. it<u+2019>s <u+201c>premature<u+201d> to assume that the estate tax will be repealed imminently, says mr. breitstone. <u+201c>it would be a shame for clients to miss out on valuation-discount opportunities only to find out that the estate-tax repeal gets stalled or the tax is replaced,<u+201d> mr. breitstone says. one caveat: consider exit strategies in the event there is a downside to the planning if repeal goes through, he says. for example, you might want to reacquire transferred assets if that gives a better result under the new law. write to veronica dagher at veronica.dagher@wsj.com
how the wealthy should plan for taxes under trump - wsj
veronica dagher