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Tax Considerations & Estate Planning Opportunities to Consider Before the End of 2020 (Part 2 of 2)

As indicated in Part 1 of our series, Tax Considerations & Estate Planning Opportunities to Consider Before the End of 2020, President-Elect Joe Biden's plans include higher tax rates that will affect wealthy individuals and businesses. His proposed tax policy includes the removal of the favorable tax exemptions included in the Tax Cuts and Job Acts of 2017.

Taxpayers with high incomes will see both an increase in their individual taxes and the gifts and estate tax exemptions returning to $3.5 million ($10 million per couple) as opposed to the current exemption rate of $11.5 million ($23 million per couple). With this much of a difference in tax, it is imperative that you act now if you plan on moving your assets to a trust. Gifting must take place before January 2021!

Under the current regulations, a couple can gift $15 million of assets and pay no federal estate and gift tax. Under Biden’s proposal, this same scenario will cost the couple $5 million out of the $15 million gifted.

Today, an asset at death is "stepped up" to fair market value. For example, someone holds an asset for many years as it appreciates. Upon the owner's death, the asset is then passed on to an heir. The basis (the owner’s original investment in the asset) rises to the market value as of the date of death and the heir inherits this “stepped-up basis.” If/when the heir sells the asset, they can do so and pay little to no capital gains tax. Biden has proposed eliminating this benefit, however, it is unclear whether he would impose a tax on unrealized appreciation at the decedent’s death or eliminate the basis step-up altogether, so that inherited property would retain the basis that it had in the hands of the decedent.

Biden's proposal could also increase estate tax rates to as high as 67% from the current 40%, according to analysis done by the Tax Foundation.

Between now and the end of 2020, current tax law provides an incredible opportunity to transfer assets while minimizing losses. We may never see tax rates this low again! Please give us a call if you wish to discuss!

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