Changes in the White House and the Senate have many people wondering how federal estate and gift tax laws may change and when those changes will occur, as reported in an article “Estate planning in light of a new presidential administration: What should you do now?” from the St. Louis Business Journal.
While campaigning, Joe Biden pledged to undo many of the prior administration’s tax policies, promising a progressive approach to taxation focusing on shifting the burden of taxes to high-income individuals and businesses.
The Tax Cuts and Jobs Act (TCJA) temporarily doubled the federal estate and gift tax exemption to $10 million (adjusted annually for inflation) until 2025. For 2021, the exemption stands at $11.7 million for individuals and $23.4 million for married couples. These amounts were set to expire after 2025 to $5 million for individuals and $10 million for married couples, but changes are expected to arrive sooner.
Biden also said he would end the “step-up” in basis that spares beneficiaries from having to pay income taxes for capital gains on inherited assets that appreciated in value, typically stocks, mutual funds and real estate. If a beneficiary sells an inherited asset now, the capital gains generated is the difference between the asset’s fair market value at the time of the sale minus the stepped-up basis, i.e., the fair market value of the asset at the date of the deceased’s death, rather than the basis at the date of the original purchase.
Without the step-up in basis, the capital gains generated upon the sale of the inherited assets would be far higher, increasing capital gains taxes paid by heirs.
Does it make sense to prepare or review your estate plan now, in light of the potential changes ahead? Having an outdated estate plan might be a bigger risk. When it comes to big changes in future tax laws, there are two things to keep in mind:
Making changes out of fear of tax law changes that have not occurred yet, could have lasting effects, and not always good ones. It is prudent to remain informed and prepared, but not to anticipate changes that have not become law yet.
What is more important is to be prepared for change, by understanding your current estate plan and being sure that it still works to minimize taxes and accomplish goals.
A few questions to consider:
- Do you fully understand your current estate plan?
- Do you know the total value of your assets and liabilities?
- Do you know if federal and state estate taxes will be an issue for your heirs?
- Have you reviewed your beneficiary designations recently?
- When was your estate plan last updated? That includes your last will, revocable living trust, power of attorney and health care directives.
Changes are coming to estate law, but what they are and when they will occur are still unknown. Having an experienced estate planning attorney create or review your estate plan right now is more important than waiting to see what the future will bring.
One of the main goals of our law practice is to help families like your plan for safe, problem free, and successful transfer of assets to the next generation. Call our office today to schedule a time for us to review your estate plan and identify the best strategies for you and your family to ensure your legacy of love and financial security. Our office is located in Santa Ana, CA but we serve all of California including Irvine, Orange, Tustin, Newport Beach, and Anaheim.
For more information and articles on estate planning, probate, trust law, and business planning, please visit our website and subscribe to our monthly e-newsletter.
Reference: St. Louis Business Journal (Jan. 27, 2021) “Estate planning in light of a new presidential administration: What should you do now?”