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What President Obama’s State of the Union Proposals Mean for Your Estate Plan

by Legacy Plan Feb 25, 2016

Summary: The president’s proposed overhaul to the tax code could have dramatic impact on many people’s estate plans. Even if the changes become law, there are still estate planning tools available to you to help you minimize the tax impact your death has on your beneficiaries. Putting your estate plan through a regular “check-up” will help give you the peace of mind that comes from knowing that your plan is always optimized to achieve your goals in accordance with the current law and your current life situation.  

Earlier in January, President Obama delivered his State of the Union address. The president’s 2015 address included a number of policy proposals related to the tax code. These changes could have a substantial impact on many estate plans if they become law. As with any changes to state or federal laws, it is important to understand the potential impact on you and consider what steps are most appropriate to ensure you get the most out of your wealth.

Seal for the State of the Union

One component of the president’s tax plan would change both capital gains tax rates and the triggers that cause a capital gains tax to be imposed. Currently, the top rate is 23.8%; under the president’s plan it would rise to 28%. Arguably more importantly, however, the president’s plan would change how death affects the capital gains tax, essentially making your death a “taxable event” for your beneficiaries. For example, say you bought $20,000 of Google stock in 2010 and your estate plan leaves it to your children. Now assume that, when you die, the stock is worth $60,000. Under the current law, your children receive that stock with a “tax basis” of $60,000, so if they sold it the very next day for $60,000, they would owe $0 in capital gains taxes. Under the president’s plan, your children would owe capital gains taxes on the $40,000 increase, and that obligation would hit as soon as they received the stock (in order words, upon your death.)

If the proposal were to become law, there are still some methods for engaging in estate planning to minimize the tax obligations for yourself and your beneficiaries. One option is purchasing cash value life insurance, which would offer you both favorable tax treatment of the policy’s accumulation, along with tax-free withdrawals.

Also, a charitable remainder trust may also help further your estate planning goals. These irrevocable trusts come in two sub-types: charitable remainder annuity trusts and charitable remainder unitrusts. With a charitable remainder trust, you make a donation of property to your charity (such as, say, a quantity of stock) to your trust. The trust pays you (or a person you name) either a fixed or variable income (depending on whether you created a CRAT or a CRUT,) and then, when you die, transfers the remainder of the asset to your charity that you named. These trusts can offer significant tax benefits with assets that you might expect to appreciate rapidly (like some stocks or certain real estate.)

Another estate planning tool that might help is what’s called a “dynasty trust.” A dynasty trust is a type of irrevocable trust that you can create for your children, grandchildren and even beyond. You can name the trustee who will manage the trust and stipulate the conditions for which payments are made to your beneficiaries. By remaining in a dynasty trust, an appreciated asset would avoid the capital gains tax “hit” that comes with a full distribution to beneficiaries. As an example, you could establish a dynasty trust designed to help fund the college educations of your grandchildren, great-grandchildren and even subsequent generations.

Certainly, all of this varies depending on whether the president’s proposals become law. But regardless, the proposed changes illustrate how readily — and dramatically — the laws impacting your plan can change in a brief period of time. That’s why it is important to ensure that you and your estate planning team put your plan through a routine “check-up” to make certain your plan best meets your stated objectives.

This article is published by the Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services-company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at

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Legacy Assurance Plan
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University Park, Florida 34201
844.306.5272 (Phone) (email)

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