The Biden Tax Plan and Your Estate

With the advent of a new administration usually comes change. President Biden’s tax plan may affect your estate planning adversely. Here are a few key points of
the plan.

Estate and Gift Taxes May Increase:

Arizona has no estate taxes. On the federal level, each person has an estate and gift tax exemption – the amount you can give away during life and at death before being taxed – that is currently $11.7 Million. Biden’s plan would reduce the federal exemption to $3.5 Million for estate taxes at death, and $1 Million for gifts made during your lifetime. The plan also proposes to increase the tax rate on estates and gifts over the exemption from 40% to 45%.

For Estates that are or may be taxable under Biden’s Plan, there are strategies to maximize your tax exemptions under Biden’s plan as well as ways to take advantage of the higher exemption while it still exists.

Currently, married couples have portability of the exemption between spouses, allowing a surviving spouse to inherit their deceased spouse’s unused federal estate tax exemption. This portability for spouses is expected to continue under Biden’s plan.

The Stepped-up Basis to Reduce Capital Gains at Death May Be Eliminated:

The IRS levies capital gains taxes on profits from selling an investment. Profits are calculated on the cost basis – what you paid for the asset. When the asset is sold, taxes are paid on the sales price less the cost basis. Currently your heirs’ inherited assets get a step-up in the cost basis to the value as of your date of death. Thus, when the asset is sold, the tax is levied on the difference between the value at your death and the sales price. This significantly reduces capital gains for inherited assets. Biden’s plan would eliminate the step-up in basis for gains over $1 Million. This change can greatly affect estate planning strategies designed to minimize taxes paid by the beneficiaries after the owner’s death.

Strategies:

This article is too short to address the various strategies to minimize taxes. These strategies include gifting, use of irrevocable trusts, and charitable giving strategies that benefit your family and your charity. What strategies will work for your estate varies based on many factors. We would be happy to discuss those with you.

Estate Planning is About More Than Taxes:

It is important to remember that estate planning is not just about avoiding or minimizing taxes. That can be an important element of a plan, but estate planning is also about saving time, money and grief for your family and beneficiaries.

First, having a plan in place, especially a Revocable Living Trust plan – assists you if you are incapacitated, making sure the person you have selected can step in quickly to manage finances while you are unable to do so. Without that, your family will need to file an expensive and time-consuming conservatorship proceeding with the court to be able to handle your financial affairs.

Second, a Revocable Living Trust plan will assure that who you have appointed to wrap up your estate and make distributions at your death is easily able to do so. Without that, your family likely will need to file a probate court proceeding, even if you have a Last Will and Testament. That’s right, a Will alone does not automatically enable your executor to act on behalf of your estate without court proceedings, and you Will alone does not transfer your property automatically at your death.

Conservatorship and Probate Court proceedings are public, so the Revocable Living Trust also helps in another way. It assures privacy as your family addresses your finances and as your Trustee performs the duties you have assigned to him or her.

A good estate plan provides for your incapacity and death, avoids court proceedings, minimizes attorney’s fees, and provides a smoother transition of assets to your beneficiaries is every bit as important as planning for tax avoidance. It will also provide you with peace of mind. Our office would love to assist you in putting a great plan in place. Give us a call at 602-375-6752 or visit our website at www.LibbyBanks.com .