The Trump Administration, the House Committee on Ways and Means and the Senate Committee on Finance released their Unified Framework (Framework) for Tax Reform on September 28. There were few surprises and fewer details included.

The estate tax and the generation-skipping transfer tax are slated for repeal, which is not a surprise. Repeal of the estate tax has always been an important part of President Trump’s plan for tax reform. Estate tax repeal and the repeal of the generation-skipping transfer tax has also been a long-term goal of the congressional Republicans.

The Framework makes no mention of the future of the gift tax. The elimination of the gift tax would likely encourage significant lifetime transfers in trust, and these transfers would cause a meaningful erosion of assets potentially subject to future estate taxes. A failure to repeal the gift tax may be motivated by a desire to preserve this possible taxable asset base, although others have suggested that the gift tax is important to prevent income tax avoidance.

The Framework does not address basis adjustment at death. This could mean that current law, which generally adjusts basis to date of death market value (a “step-up” or “step-down”), would continue. Presumably, some changes would have to be made to properly coordinate the basis provisions under current law if there is no estate tax. It is also possible that when detailed proposals are made, there could be (1) no basis adjustment at death (“carry-over basis”), (2) a limited basis adjustment at death (basis step up for assets up to the value of the gift and estate tax exemption, currently $5.49 million per person with double that for married individuals), or (3) gain recognition at death.

Because it is difficult to predict what changes will be enacted and how long they will last, maintaining flexibility in estate plans is critical. Consider giving another person an expanded power of attorney that can be exercised to make certain changes to the principal’s estate plan in response to these changes. For example, a power of attorney could authorize the holder of the power to make transfers of property to revocable trusts and to change the terms of revocable trust instruments in a manner that would maximize tax efficiency without changing the basic dispositive plan. Similarly, the independent trustees of an irrevocable trust can be given the power to make changes that would reduce the exposure of trust assets to future taxation. For example, if the estate tax is repealed, giving a trust beneficiary a testamentary power of appointment could provide a means to achieve an asset basis step-up at death.

Although gifts that attract gift tax liability should probably be avoided until the future of the transfer tax system is clear, we think it is important for high-net-worth individuals to continue to implement gift-tax free transactions that shift property from their estates to trusts for family members. It is possible that estate tax repeal will not be enacted. Even if the estate tax is repealed, lifetime estate planning will continue to be important to individuals who want their children to enjoy some of the family wealth before they die. The parent who wants to continue to contribute to support his or her children after they reach majority will likely face gift tax consequences unless assets have been shifted to trusts for the children’s benefit.