Review your estate plan in light of a new presidential administration

December 28, 2020
White House Press Briefing Podium
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Note: This article is for informational purposes only and should not be considered an endorsement of any political party or policy.

As President-elect Joe Biden moves forward with the transition and prepares for his inauguration, you may be wondering how the federal estate tax may be affected.

During the campaign, Biden pledged to roll back many of President Trump’s tax policies. In response to the Tax Cuts and Jobs Act (TCJA), Biden has promised a progressive approach to taxation, focused primarily on increasing the burden on high-income individuals and businesses.

Bear in mind that his odds of translating his proposals into legislation in the next couple of years largely hinges on the outcomes of runoff elections for the two Georgia seats in the U.S. Senate. Biden’s party needs to win both seats to take a majority in the Senate. These elections are scheduled for January 5, 2021.

Proposals for gift and estate taxes

The TCJA temporarily doubled the federal gift and estate tax exemption to $10 million (adjusted annually for inflation), through 2025. The 2020 exemption is $11.58 million for individuals and $23.16 million for married couples; for 2021, it’s $11.7 million and $23.4 million, respectively. These TCJA amounts are scheduled to expire after 2025 to $5 million for individuals and $10 million for married couples, adjusted annually for inflation.

Biden has proposed reducing the exemption to $3.5 million for estate taxes and exempting $1 million for the gift tax. He also favors imposing a top estate tax rate of 45%, from the current rate of 40%.

In addition, Biden would like to end the “step-up” in basis that spares beneficiaries substantial tax liability for capital gains on inherited assets that have appreciated in value, such as stock or a house. If a beneficiary sells an inherited asset now, the capital gains generated is the difference between the asset’s fair market value at the time of sale less the stepped-up basis (the fair market value of the asset at the date of the deceased’s death), rather than the basis at the date of the original purchase. Without the step-up in basis, the capital gains generated on sale would be a larger amount

Review your estate plan

As mentioned above, the ability of Biden to implement his proposals rests largely on who controls the Senate. Either way, though, it’s worth your while to review your estate plan and make any necessary revisions. Potential tax law changes are a reason to trigger a review, as well as life changes, such as a marriage, the birth of a child or a divorce. Please turn to us for help reviewing your plan and making changes based on your specific circumstances — contact Leslie below.

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Learning Center articles, guides, blogs, podcasts, and videos are for informational purposes only and are not an advertisement for a product or service. The accuracy and completeness is not guaranteed and does not constitute legal or tax advice. Please consult with your own tax, legal, and financial advisors.