With the new President-Elect set to take office in the new year, the Biden tax proposal could impact your estate planning, and now is a good time to make changes to protect your assets and the legacy you leave your family. No doubt there will be some significant legislative changes happening. While these proposals have not yet been passed into law, it’s important to understand how they may impact you and your estate planning needs.
Proposed Changes to the Estate Tax in the Biden Tax Proposal
The Biden tax proposal is looking to lower the estate tax exemption by about 50%, meaning estates with about $5MM in assets would be subject to it. If that brings your estate beyond the estate tax exemption, then you may need to make changes to your current estate plan to avoid losing 40% of your assets to taxes!
One of the most concerning pieces of the Biden tax proposal is getting rid of the “step-up” in basis for inherited assets. This may sound like just a “wealthy” taxpayer problem, but it could end up being a backdoor tax on a lot of lower and middle-income families. Here’s an example:
Your parents bought their home in the 80’s for $100K and now it’s worth $500K. Under the current law, if they pass away and leave that to you, the tax basis gets reset as of the date they pass to eliminate any gains, and if you were to sell it for the $500K it’s worth, you wouldn’t owe any tax. Under Biden’s proposed tax plan, if you sell it for the $500K you’d have a $400K taxable gain, and lose close to $130K in tax depending on your state and other income, and it would push your total income over $400K, resulting in potentially more tax as your deductions phase out.
While that might sound like a “rich” person’s problem, this will affect ALOT of families earning under $400K and result in a back-door tax increase. Also, for families that might be subject to the estate tax, this would result in double taxation on the same assets!
If you would like to learn more about how to protect your family from unnecessarily paying estate and inheritance taxes, we invite you to schedule a free 15-minute consultation or a family wealth planning session and get more financially organized than you have ever been and keep your family out of court and conflict.