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Published on: 10/12/2021 • 4 min read

How the Biden Estate Tax Plan Affects Estate Planning

The proposed Biden estate tax plan, officially titled the American Families Plan, moves to lower the estate tax exemptions from $11.7 million to the $3.5 million – $5 million range. It also suggests implementing gifting thresholds, imposing a death tax on inherited property, and eliminating the step-up in basis at death.

At Avidian Wealth Solutions, we often hear inquiries from our clients about the impact of tax law changes on their financial plans. In this article, we are going to cover what Biden’s tax plan proposes to change and how it will affect your estate planning.

What is the current estate tax rate?

Currently, estate tax exemptions are $11.7 million (double that if you’re married) before you have to pay federal estate taxes ranging from 18% to 40% on any amount over the $11.7 million thresholds. Depending on where you live in the United States, you may have to pay both federal and state estate taxes. These states include Washington, Oregon, Minnesota, Illinois, Maryland, Vermont, Connecticut, New York, Rhode Island, Massachusetts, Maine, Hawaii and Washington, D.C.

The way federal estate taxes are set up now allows many families to pass on their properties tax-free. According to the Tax Policy Center, out of the 2.7 million individuals that were expected to die in 2020, there will only be about 4,100 estate tax returns filed and of that, only 1,900 were taxable.

With Biden’s new estate tax, many more families will have to pay taxes on estates they wish to pass down to their heirs.

What are the proposed estate tax changes? 

The Biden estate tax plan proposes two main areas of change: 1) reducing gift and estate tax exemption amounts and 2) getting rid of the step-up basis.

The proposed estate tax changes will take the exemption threshold from $11.7 million down to the $3.5 million – $5 million range with the tax range increasing from 40% to 50% or more. While at the same time limiting lifetime gifts to $1 million and annual gifts to $10,000 per donee. Biden’s tax plan is also looking at imposing a death tax so that the beneficiary who receives the property of the deceased has to pay a tax before being able to transfer the inherited property. 

As it currently stands, capital assets are “marked to market” or “stepped up” which means that they are brought up or down from their cost basis. Often, this means that they are passed on with a higher cost and fewer taxes. The Biden estate tax plan aims to eliminate this basis altogether.

How will this affect estate planning?

The proposed changes being made to estate taxes and gift planning will have an impact on a lot of American families trying to pass their legacy onto the next generation, making financial planning for high-net-worth individuals an urgent matter. For instance, eliminating the step-up in basis will pose a tax issue for any individual holding highly appreciated assets. Likewise, lowering the estate tax exemption amount to less than three times what it is now will force a lot of families to pay way more in taxes than they would have before.

To leave the maximum amount to your children and grandchildren, it’s wise to review your estate planning and gifting strategies before the tax brackets and rates change. Especially if you’re an individual with complex estates or large, closely-held assets. The current tax exemption levels are the highest they’ve ever been and we don’t want you to miss the opportunity to take advantage of them.

With the impending changes of the Biden estate tax plan, there are some strategies we can currently implement to help you make the most tax-advantaged estate plan. Some of these include utilizing gifting strategies, trusts, and life insurance.

Is your current financial advisor proactive about preparing for tax changes? If not, it might be time to find a new advisor. Here are our 5 tips to know when to change wealth managers.

Looking for tax-efficient estate planning? Let’s talk!

Your successes have brought you many financial rewards. We want to help you preserve those and pass them down to the next generation. Our multidisciplinary team can advise on tax-saving strategies for wealthy individuals and families to protect your assets and continue the legacy you worked so hard to build. 

At Avidian, our estate planning in Houston process always starts with identifying your goals and objectives, helping you prioritize what’s most important to you. We’ll then provide you with a thoughtful set of tax-efficient strategies to help you get there.

To learn more about how these tax changes will affect your estate planning, request a meeting today.

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