The campaign of Democratic presidential nominee Hillary Clinton has many policies to spend the government’s money, but few to actually increase it. However, her campaign recently issued a plan to bring in a bit more revenue via hiking the unpopular estate tax.
The estate tax — that part of a person’s wealth which goes directly to the government upon their death — currently maxes out at about 40 percent for rich Americans. Under Clinton’s plan, however, the new top tier for the tax would be raised to 65 percent.
That tier would likely only affect billionaires and near-billionaires, but for Americans with estates worth only a few million, the rate would still be raised from the 40 percent level to at least 45 percent — and would increase as one’s wealth multiplied.
There would be 50 percent, 55 percent and 65 percent tiers for those citizens whose estates were worth more than $10 million, $50 million and $500 million at the time of their death, respectively.
Whereas currently, all estates are exempted from the estate tax if they’re valued at less than $5.45 million, under Clinton’s plan that figure would drop to just $3.5 million. Those numbers include the value of family-owned businesses and properties if their ownership is in the name or partially in the name of the deceased.
Most billionaires have an army of lawyers that are adept at finding loopholes to the estate tax, so the prospect of the government reaping a huge immediate windfall from these increases is more talk than realism. However, many of these loopholes may also be undergoing changes or elimination, as the government gets more efficient at collecting the tax from wealthy citizens.
Unlike income taxes, planning for estate tax is a long-term proposition, and sudden or accidental deaths can catch families and significant others off-guard. Sometimes these families or spouses are forced to sell companies or large properties in order to pay Uncle Sam; this can often be a bitter pill to stomach.
Many Republicans — including GOP presidential nominee Donald Trump — are in favor of repealing the estate tax entirely. George W. Bush signed legislation that eliminated the estate tax in 2010, but that temporary abeyance expired when Congress refused to extend the suspension.
Instead, Congress raised the tax’s exemption rate from $1 million to $5 million and allowed gifts that were made while a person was still alive to count toward the exempted amount.
What’s interesting about Clinton’s proposal is that now that both she and her husband are approaching the top tier of the plan in terms of personal wealth, they each want to employ the same tax shelters and other financial gimmickry to avoid the estate tax that many current billionaires use.
In 2007, Clinton appeared with investor Warren Buffett at a campaign fundraising event in San Francisco and spoke about higher estate taxes. What was left unsaid at the time was that Buffett himself was using such strategies, including charitable donations, to avoid the hefty tax.
In 2010, the Clintons formed residential trusts and moved their pricey Chappaqua, New York mansion into them. Specifically, they cut the ownership of their home up into 50 separate shares, then moved the shares into the trusts. This allowed any appreciation in the home’s value to occur outside their taxable estate and enabled the Clintons to save hundreds of thousands on their future estate taxes.
The Clintons formed a second life insurance trust in 2010, which effectively also shelters their life insurance payments from the estate tax. Their first such trust was created in 1996.
Hillary Clinton was fond of saying the couple left the White House in 2001 “dead broke” and in debt (a reason, perhaps, for their pillaging of many of the furnishings of the White House for their own home), but her pleas of poverty were ultimately proven untrue.
In 2014, Nick Merrill, a spokesman for the Clintons, said the couple’s finances were an “open book,” but refused to answer detailed questions about them.
David Scott Sloan, a partner at law firm Holland Knight explained, “The goal is really to be thoughtful and try to build up the nontaxable estate, and that’s really what this is; you’re creating things that are going to be on the nontaxable side of the balance sheet when [you] die.”
On the Clintons’ Westchester County real estate documents, two estate-planning advisors are listed — Rorrie Gregorio at Marcum LLP and Linda Hirschson at Greenberg Traurig LLP, both located in New York City. Both advisors specialize in tax and estate planning for high-net-worth individuals and families; neither would comment on the Clintons.
Needless to say, Clinton’s former boss, President Barack Obama, is also in favor of raising estate taxes via increasing capital gains tax rates at death. If Obama’s and/or Clinton’s plans come to fruition, when combined with state estate taxes, the total a well-off individual would owe the government at death would amount to the highest estate tax rate of any industrialized nation on Earth.
Regards,
Ethan Warrick
Editor
Wealth Authority
