How President Biden’s Proposed Tax Plan Could Impact Your Estate

scheduling a consultation online This spring, President Joe Biden outlined a new infrastructure plan and American Families Plan to the tune of $4 trillion. In keeping with campaign promises, he plans to pay for these plans by raising taxes on corporations and Americans with a high net worth. In a break with his initial campaign promises, though, President Biden is no longer proposing an expansion of the estate tax. Despite this change, the plans – if enacted – could have major implications for estate planning. His proposal aims to increase income and capital gains taxes while also eliminating the step-up basis rules. These changes must be factored into your estate plans to avoid any unpleasant surprises.

Proposed Changes

President Biden has proposed raising the top marginal income tax rate from 37 percent to 39.6 percent. This would increase the capital gains tax rate for those earning more than $1 million per year, or married couples earning more than $2.5 million from 23.8 percent to 39.6 percent. That would equalize the rate paid on investment returns and wages for high-earning individuals and families.

The elimination of the step-up in basis policy could also have serious implications for estate plans if not planned for carefully. The current policy allows individuals to bypass capital gains taxes when assets are inherited. The asset’s market value at the time of inheritance – rather than its value at the time of purchase – is used for calculating capital gains when the asset would eventually be sold.

Planning Implications

Estate planning always hinges on your specific assets and goals, but there are a few key takeaways worth considering. While it is hard to predict exactly which proposals will receive Congressional approval, it is always possible that the increase in gift and estate tax exemption implemented by the 2017 Tax Cuts and Jobs Act can decrease by the time it expires in 2025. If you are planning on making any gifts, it is a good idea to consult with an estate planning attorney before doing so to discuss both advantages and disadvantages and what it can mean for you and your family.

At this point, it is premature to plan for the elimination of step up in basis or an increased capital gains tax rate. Instead, take this opportunity to clarify your assets and understand how your specific estate plans might be impacted by the proposed changes. If you are concerned about the possible upcoming changes in laws regarding estate planning, Your Legacy Legal Care will help guide you to ensure you, your family, and your assets are best protected. Take the first step in protecting your family and your assets today by scheduling a consultation online, or by calling us at (281) 885-8826.