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Your Succession Planning in the Age of Trump

January 20, 2017 | Philadelphia Business Journal
Peter Spirgel

This article originally ran in the Philadelphia Business Journal on January 20, 2017. 

Each new administration enters the White House with an ambitious agenda that typically promises broad tax law changes. The Trump Administration is no exception and has the added advantage of a Republican Congress ready to flex its new-found legislative muscle. Business owners and their advisors must consider the impact the promised changes will have on future income and estate tax planning strategies and on planning for the eventual sale or other transition of privately-held business holdings.

The Greek philosopher, Heraclitus, is said to have observed that “the only constant is change.” Nowhere is this adage more appropriate than with the tax law and the changes to the tax laws promised by the Trump Administration. Couple this with the sense that a President Trump portends to be one of the most unpredictable Presidents in recent memory; and the challenge facing business owners and their advisors seems daunting.

A visit to the Trump web page,, yields President Trump’s vision which includes:

Tax planning for owners of privately-held businesses has always involved planning for the inevitable sale or transfer of business interests. Business holdings typically represent a significant portion, if not most of, a business owner’s net worth with the added challenges of significant untaxed appreciation. Under current law, there is both a Gift Tax on lifetime transfers and an Estate Tax on transfers at death. The Trump plan makes no reference to any modifications to the current Gift Tax provisions which tax lifetime gifts over $5.49M (on a cumulative basis). Assuming the Gift Tax remains, emphasis may shift toward structuring lifetime gifts of appreciated property up to the $5.49M threshold.

Of the possible tax changes, none looms larger, or for that matter, more likely than the promised repeal of the estate tax. While a repeal seems likely, the Republican majority in the Senate is not large enough to make any repeal permanent thanks to the so-called “Byrd” rule (named after Senator Byrd) which would effectively require 60 Senators to vote for the repeal. Instead, we are likely to have any repeal “expire” after 10 years, similar to the Bush tax cuts which expired in 2011. So much for certainty!

Less certain is the fate of the long-standing step-up of cost basis at death. This rule allowed most taxpayers to transfer appreciated business interests at death and avoid capital gains tax on the appreciation. If Trump’s proposal of eliminating this benefit for the very wealthy is enacted, the combined effect on a taxpayer seeking to transfer a significant business interest to the next generation should still, in fact, result in a tax reduction as the current estate tax rate is significantly higher than the proposed capital gains tax rate. Taxpayers could get “whipsawed” if they delay transfers to the next generation only to out-live the repeal of the estate tax. One can imagine a scenario where the repeal of the estate tax sunsets while the limitation on basis step-up at death is retained.

In reality, the Federal estate tax affects very few taxpayers. Currently, married couples can leave a combined estate of just under $11M and avoid Federal estate tax entirely. If not for those advocating for its repeal cleverly “rebranding” the tax as the “death tax,” I wonder whether the clear mandate for its repeal would exist? Whether or not the estate tax is repealed, it remains a significant planning challenge for business owners looking to transition significant business interests or other accumulated wealth to beneficiaries. For business owners with holdings under the estate tax threshold (currently $5.49M - or twice that amount for a married couple), a sale of a business during the owner’s lifetime currently results in a significant capital gains tax liability. Conversely, a sale after death avoids the capital gains tax thanks to the rule which increases the basis of the business interest to the market value at death.

With all the uncertainty currently surrounding the taxation of wealth transfers, would the prudent course of action be to delay planning? No. In fact, there are many non-tax considerations that necessitate early planning for the eventual sale or transfer of business interests. Asset protection is still an important objective for current and future generations. Additionally, business owners contemplating a future sale or transfer of business interests must still structure holdings to reduce the tax liability on any subsequent transfers, accommodate the future cash-flow needs of the current owners and maximize the value of the business to potential purchasers or provide a clear equity and governance structure for the next generation.

As always, incorporating flexibility into any tax, estate or transition plan will be of paramount importance to permit the inevitable adjustments that will be required. The only thing that is certain is that the current tax laws will change. Planning for the change always trumps a wait and see approach.

Peter Spirgel is an attorney at Flaster Greenberg PC where he serves as Chairman of the Board. He has a business practice with special emphasis on taxation, estate planning and corporate mergers and acquisitions. He also represents privately-held businesses and their owners in capital transactions, transition planning and shareholder disputes. He can be reached at 856.661.2267 or

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