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Three Ways Trump’s Tax Plan Affects Clients and RIAs

September 28, 2017

President Donald Trump’s tax plan, unveiled yesterday, would both bring relief for middle-class families and gains for wealthy Americans, Bloomberg reports. Most notably the plan calls for a lower top income rate, the death of estate taxes and a cap on corporate taxes. There are also wins directly for RIAs that are set up as pass-through entities.

The plan does away with the estate tax — identified as the “death tax” in the proposal — and the generation-skipping estate tax, as well as the alternative minimum tax, all of which would benefit high income clients and wealthy families, according to the newswire. The estate tax alone, which impacts estates worth more than $5.49 million, would amount to a $269 billion tax break for the wealthiest 0.2%, Sen. Bernie Sanders, D-Vt., tells Bloomberg in an emailed statement. But advisors should note that for high earners in states such as Vermont, the plan calls for killing state and local tax deductions, which tend to benefit such earners, according to the newswire.

Individual tax rates will be capped at 35%, although the plan puts the onus on Congress to decide whether to form a higher income bracket for top earners, Bloomberg reports. Several Republican lawmakers on the House Ways and Means Committee, which is responsible for taxes, support a “special” income tax rate for the highest earners, a GOP member of the panel who asked to remain anonymous tells the newswire. The plan also sets up just three tax brackets for individuals, at 12%, 25% and 35%, instead of the current seven rates.

The proposal would also cap taxes on pass-through businesses, such as partnerships and limited liability companies, at 25%. That’s well below the current limit of 39.6%. But the plan leaves it up to the Congressional committee to figure out methods to stop the “recharacterization of personal income into business income” as a way to avoid the top personal tax rate, according to the plan.

Corporate tax would be capped at 20%, which the proposal says is below the 22.5% average for the “industrialized” world. The plan also calls for the repeal of the corporate alternative minimum tax. Businesses would be able to write off their capital spending immediately and for at least five years, Bloomberg writes. And U.S. firms that have accumulated assets abroad would be able to bring them home with a one-time tax, payable over several years. But that rate hasn’t been set in the plan, according to the newswire.

Financial advisors welcome aspects of the plan but would like more detail, according to InvestmentNews.


The 25% cap on pass-through businesses would greatly benefit RIAs directly, since up to 75% of them are structured as such entities, Paul Auslander, director of financial planning at ProVise Management Group, tells the publication. But some advisors fret about the plan’s omission of the capital gains tax, the gift tax, and how taxes on capital gains would be adjusted at death, InvestmentNews writes.

It’s also unclear what happens to the tax credits individuals could recover for the alternative minimum tax, Tim Steffen, director of advanced planning in Robert W. Baird & Co.'s private wealth management group, tells the publication.

By Alex Padalka
  • To read the InvestmentNews article cited in this story, click here.
  • To read the Bloomberg article cited in this story, click here.