Trump's kids could be saddled with a huge tax bill when he dies — could it happen to you?
A recent Forbes story has brought to light that U.S. President Donald Trump is setting up his children for a massive tax bill when he passes away.
Donald Jr., Ivanka, Eric, Tiffany and Barron Trump could be saddled with a $1.3 billion tax bill at the time of their father’s death. That’s thanks to two factors: first, in the U.S. there’s an estate tax levied when someone inherits money; second, Trump has held onto the better part of his estimated $3.1 billion fortune.
While other famous wealthy people have handed off stake in their businesses to protect their children from future tax burden (like Sam Walton, who awarded his three children an 80 per cent stake in Walmart prior to its widespread success), Trump hasn’t followed the same pattern. The eldest three Trump children have small stakes in Trump International Hotels, totalling $15 million, while Trump remains in control of the rest of the family fortune.
What complicates things is the tax they’ll pay when the family patriarch does pass away. In the U.S., an estate tax is paid on all inheritance; the tax is 18 per cent if the estate is worth less than $1 million, and 40 per cent when it’s over that amount. A U.S. citizen can defer up to $11.2 million in their lifetime.
Trump has also been known to carry an impressive debt load, accrued while building his business empire. Ahead of the 2016 presidential election, Forbes reported Trump had accrued $1 billion in debt through his various businesses and holdings. Any personal debt he has would be paid off through the selling of his assets posthumously, which would definitely cut into the fortune set to go to his children.
Why it wouldn’t happen in Canada
In Canada, you won’t be faced with a massive estate tax bill if a loved one bequeaths money to you, because there’s no inheritance tax here.
If, like the U.S. President, you carry any personal debt, there is a chance it could be passed on to your children — but only if they co-sign for that debt in the first place.
“If someone is a co-client, they’re responsible,” says Richard Haggins, senior education facilitator at Credit Canada. If parents don’t want to pass debt on to their children, they shouldn’t co-sign on any loans with them as they approach the end of their life, as the most likely scenario is their child will be on the hook for any outstanding balance after his or her passing.
If someone passes away without any co-signer on their loans, but still owes money, it falls on the executor of their estate to pay off any outstanding debts through the sale of that person’s assets. And if after the sale of everything is complete and there’s still insufficient funds, the debt vanishes.
“That’s the end of it, the debt expires,” says Haggins. “If someone dies and they leave more debts than assets, nothing has been inherited by the next of kin.”
Beware fraudulent collectors
There have been cases of debt collectors following up with the next of kin, and making people feel like they’re on the hook for the debt. Haggins says you’re not responsible for any of it, unless you sign for it, or you’re the executor and didn’t follow through to the best of your ability to sell off the deceased’s assets and pay down the debt first.
“There are people who have been contacted by debt collectors and they'll imply that somebody has a responsibility to take care of their parents debt,” says Haggins. “I remember a man I spoke to whose father had just passed away, and he got a phone call, and he was told ... ‘to honour your father's memory, you should pay off his debts.’
“Just because they say it doesn't mean you have to do it, they really prey on people in that vulnerable state.”
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