News | June 21, 2021
Tax Planning | June 21, 2021
Over the last six months, President Biden has communicated some of the potential tax law changes he considers important. He has also recently sent the American Families Plan1 to Congress, which formally proposes many of his previously mentioned changes. A review of those proposed changes and other tax provisions floated by the Obama Administration and current Democratic Senators will hopefully shed some light on what tax changes may be on the horizon.
Under current law, the estate and gift tax exemption is $11.7M per person or $23.4 million for a married couple. While it was not included in the American Families Plan, President Biden has stated that he supports lowering the estate tax exemption to either $3.5 million or returning to the pre-Tax Cuts and Jobs Act (TCJA) limit of $5.5 million. He has also indicated an inclination to lower the Generation-Skipping Transfer Tax (GSTT) exemption from the current $11.7M to $1M. During his campaign, President Biden also proposed raising the current top estate tax rate from 40% to 45%.
There has been no mention of changing the annual gift exclusion amounts. However, the proposals would provide a total limit on annual exempt gifts to one trust or to all donees of $30,000 to $50,000.
Currently, heirs of an estate receive assets with a basis equal to the fair market value of those assets at the time of the decedent’s passing. This essentially eliminates any capital gains tax on the unrealized gains embedded in an asset prior to the date of death. President Biden has proposed in the American Families Plan eliminating this "stepped-up" basis rule. His proposal would subject estates to capital gains tax - in addition to estate taxes - on assets with unrealized gains regardless of whether the assets are sold.
Beginning with the Revenue Act of 1921, Congress has frequently tinkered with the tax rates on the sale of capital assets. Part of President Biden’s proposed American Families Plan is an increase to the capital gains tax rate for taxpayers with income over $1,000,000. Those high-income taxpayers would pay 43.4% on long-term capital gains.
With the wide variety of possible changes and the unknown timeline for enactment, clients with a potentially taxable estate are left wondering what, if anything, to do. These are complex topics and there are no one-size-fits-all planning solutions. We will continue to monitor the timeline and outcome of all these potential tax changes that could affect our clients’ financial plans. We thank our clients for their trust in us.
If you have questions about any of the potential tax changes above or about your estate and financial situation, please reach out to your Counselor or contact us here to learn more about working with a GW & Wade Counselor.
1 https://www.congress.gov/bill/117th-congress/house-bill/928/text
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