New presidents often mark the beginning of a new era of tax laws. For President Biden, the estate tax is a very likely target for change. The impact of potential changes reaches far beyond the estate tax, though. With Democratic majorities in both the House and Senate, change in tax law is almost guaranteed, which may mean you need to update your estate plan to help protect your assets even more than they already are. Here are just a few factors to consider as you establish or update your estate plan under the Biden administration:
Estate Tax Exemption Adjustments
Estate tax exemption rates vary from administration to administration. As of now, your estate can be valued at $11.7 million before being hit with any estate taxes. President Biden’s tax plan aims to reduce this number to $3.5 million, which is a significant drop that could leave many people with taxable estates without careful tax planning. Gifting early in your retirement or utilizing life insurance as an estate planning tool may be a good option for wealthy individuals, among other tactics that Your Legacy Legal Care can assist with.
Recognize Gains During Your Lifetime
Depending on your tax rates, you may want to sell an asset with a low tax basis, pay a capital gains tax at a lower tax rate, and then gift the cash to your beneficiaries during your lifetime. For instance, a taxpayer would pay the capital gains tax after selling an asset, then give the full proceeds to children in lieu of passing on a low tax asset after passing. This removes the asset from your taxable estate at death.
Make Annual Exclusion Gifts
Under current tax law, a person can gift an individual up to $15,000 without any tax implications. Medical and educational gifts paid directly to an institution are also considered tax-free. The Biden tax plan advocates limiting this annual exclusion to a once annual total of $15,000 – not $15,000 per beneficiary, which could limit you from gifting more than the current limit to your loved ones. Continue making these gifts, and you will see a decreased tax bill on your overall estate at the time of your passing.
The Professional Insight You Need
It is vitally important to prepare now for the wide range of potential tax changes that may occur under the Biden administration. While no one can predict the future, experienced estate planning attorneys can make recommendations that best protect your assets and family. Your Legacy Legal Care has seen many changes in tax law over the years, and have options that are available to help you protect your assets and loved ones today. Get a head start on protecting your loved ones and your hard-earned savings today by scheduling a strategy session online or by calling our office at (281) 885-8826.
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