President-elect Joe Biden campaigned on (among other things) a wide variety of proposed changes to the tax code, for individuals, for businesses, and for the treatment of estates and wealth transfers.

Below are some of Biden’s ideas for the last category:

• With regard to estate taxes, a proposed return to 2009 treatment, which would mean reducing the estate exemption from $11.58 million in 2020 to $3.5 million, and increasing the top tax rate from its current 40% to 45%. What this means is that a $15,000,000 estate, which currently would incur a tax liability of $1,368,000 would under Biden’s position incur a tax liability of $5,175,000 – a 278% increase.
• Under the current tax code, wealth transfers of $11.58 million per individual ($23.2 million for couples) are exempt from taxation. Wealth transfers over the exempt amount are taxed at a top rate of 40%. Biden proposes to apply the same tax treatment for wealth transfers that he proposes for estate taxes.What this means is that a $15,000,000 wealth transfer, which currently would incur a tax liability of $1,368,000 would under Biden’s position incur a tax liability of $5,175,000 – the same 278% increase.
• Historically, when assets are inherited, the tax code has allowed for a “step-up basis,” which means that an asset purchased for $5,000 which has appreciated to $30,000 during the purchaser’s lifetime but which is left to an heir is given a “basis” value for capital gains calculation of the valuation at the time of inheritance, rather than the amount of the original purchase price.
• Biden proposes to eliminate the step-up entirely, meaning anyone inheriting assets would be required to pay both the increased estate tax and capital gains tax on the appreciation of inherited assets from the time of purchase to the time of inheritance. Avoidance of this double-taxation is one of the main reasons the step-up was implemented in the first place.
• He also proposes to tax capital gains at ordinary income tax rates – which would increase the top rate on capital gains from 20% currently to the 39.6% Biden wants to reinstate for top-tier earners ($400,000 and higher).

All of these potential increases would generate significant push-back if actually brought to the Congressional table; whether Biden would have the votes in Congress to enact them is a question.

If you have significant assets, you may want to consider a wealth transfer to your children now, during your lifetime, under the current tax treatment. This may not be right for you and your family, but it might be. Think about it.

If you would like to discuss how possible changes to estate, wealth transfer, and capital gains taxes in 2021 or thereafter could potentially impact your family, please click here to email me directly.

Until next Wednesday –

Peace,