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Potential Estate Changes with New Biden Administration

04.22.22 written by

Potential Estate Changes with New Biden Administration

As all of you are aware, Joe Biden is now the 46th President of the United States. As a result of President Biden being in office, a number of individuals are concerned about some sweeping tax changes in the near future in the United States. However, the predominant belief is that the President must handle other more critical issues, such as dealing with COVID, the economy and unemployment.  Therefore, the belief is that major tax changes will not occur in calendar year 2021. However, the following are a couple tax items that may be looked at, if not in 2021, then in 2022 or shortly thereafter.

The current estate tax exemption is $11,700,000 per person. This is the amount of assets that an individual can pass to his family without paying estate tax.  This amount is supposed to be reduced in 2026 to approximately $5,000,000. However, some believe that this number may be reduced more and sooner. The Biden Administration has already stated, shortly after winning the election, that they are potentially looking at reducing the estate tax exemption from its current levels, which are the highest ever, to between $3.5 million and $5 million per person. If this change is made, a larger number of estates will be subject to paying an estate tax.

An estate tax is the government’s way of taxing individuals on transferring their property from themselves to their loved ones when they pass away. The current rate is 40% of anything over $11.7 million. However, with the changes, the rate could stay at 40%, or it could be increased to prior levels of 55% of assets over $3.5 million. We will see what, if anything, happens with regard to the estate taxes.

In addition, maybe a more critical issue deals with something called step-up in basis. This issue could affect everyone that dies and owns an asset such as stocks, bonds, businesses, or real estate  to name a few.  For example, let’s say you buy a stock for $10 and it is worth $100 now. If you sell it, then you will pay a capital gains tax on the difference of $90. However, currently if you die owning this stock and then transfer it to your loved ones, their basis will be increased from $10 to its fair market value on the date of your death which, let’s say, is $100. If your loved ones then sell the stock after receiving it from your estate, there will not be a capital gains tax to pay.

However, the Biden Administration has discussed the possibility of doing away with step-up in basis and going to what’s called a carryover basis system. That means that in our example, for the stock that you purchased for $10, when you pass away, your loved ones will carry over your basis of $10 to themselves. Therefore, if they sell it for $100 after receiving it from your estate, then the loved ones will pay a capital gains tax on the $90 difference in value. This is a tax that could affect every individual who passes away and has assets that have appreciated in value. Again, we will see what, if anything, the Biden Administration decides to do regarding carryover basis versus step-up in basis at death.

If you have any questions regarding these matters, please contact your local estate planning attorney or CPA.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

James F. Contini II, Esq.
Certified Specialist in Estate Planning,
Trust & Probate Law by the OSBA
Krugliak, Wilkins, Griffiths & Dougherty Co., L.P.A.
405 Chauncey Avenue NW
New Philadelphia, Ohio 44663
Phone:  (330) 364-3472
Fax:  (330) 602-3187