Tax laws play an important role in determining the best way to hold and pass on your property to your next of kin. As a result, any changes in tax laws should trigger an immediate review of your estate plan—especially if an incoming administration seeks to increase taxes on your assets.
Tax Laws May Change Under President Biden
President Joe Biden’s tax plan carries some significant reforms, many of which are aimed at collecting additional taxes from high-value estates. If these proposals were to pass in 2021, it is possible the changes would be made retroactively and affect any assets and activities after January 1, 2021. In addition, Democrats now have the majority in the Senate, meaning any proposals based on existing laws can be modified with a simple majority vote.
The new administration’s plan has proposed changes to:
- Capital gains. One highly-beneficial aspect of tax law is the step-up in basis, which allows individuals to avoid paying capital gains taxes on certain assets. Currently, an individual may pay a base price for an asset, hold it while it appreciates, then transfer the asset upon death to the new owner who pays taxes on the base price rather than the appreciated market value. If the new administration eliminates the step-up in basis for inherited assets, this will subject them to the current long-term capital gains tax rate of 20%.
- Lifetime tax exemptions. Federal law places a limit on the amount a person can give away to friends and family during their lifetimes without paying taxes on the amount. Under the Tax Cuts and Jobs Act of 2017, the lifetime estate and gift tax exemption was increased to $11.58M. President Biden is expected to lower the lifetime exemption amount before the 2017 Act’s expiration date in 2025, with the new limit allegedly between $5.5 million or even $3.5 million per person.
- Estate tax rates. Once an individual’s lifetime tax exemption has been met, the rest of the person’s transfers and the estate are assessed a certain percentage of tax. The top federal estate tax rate is 40%, but President Biden has shown interest in returning tax rates on high incomes to past levels, with speculative rates anywhere from 45% to 70%.
Our experienced New York estate planning lawyers can help you determine the best way to hold and pass on your assets, protecting you and your family for years to come. Contact Landskind & Ricaforte Law Group today through our online form to learn how we can help.