Estate Planning Under the Biden Administration



Although we await the official certification of the election, Joe Biden is set to be the next president of the United States. The 2020 election and its aftermath could bring significant changes in how Americans will be taxed. While it is unlikely that every proposal discussed during Joe Biden’s campaign will become the law of the land, we can still glean essential details from all the campaign talk to help us prepare for these possible changes. Of course, Congress has to be involved for these changes to occur!

Proposed Policy Adjustments under a Biden Presidency


Here is what we know so far about some of Biden’s key proposals that are most relevant to your estate planning:


Estate & Gift Taxes


For 2020, the estate and gift tax exemption is set at $11.58 million (indexed for inflation), with any wealth over that amount taxed at 40 percent as it passes to heirs. This exemption amount is scheduled to be lowered in 2025 to $5 million (also indexed for inflation) unless new legislation is passed before then.


Biden suggested during his campaign that he would support legislation that would reduce the estate tax exemption to $3.5 million per individual and would lower the lifetime gift tax exemption to $1 million. That said, Biden at times has proposed different figures instead. Alternatively, he has said that the $5 million exemption, as discussed above, would take effect sometime before 2025.


Capital Gains Taxes


Our current law taxes capital gains as regular income if those gains are realized on property held for less than one year. For long-term capital gains (gains on property held for a year or longer), there is a graduated tax rate depending upon the tax filer’s income level (0 percent, 15 percent, or 20 percent). For individuals and couples who earn more than $200,000 and $250,000 per year respectively in net investment income, there is an additional 3.8 percent surtax added to their capital gains tax rate.


The current law also allows for a step-up in basis of appreciated property if the property is held until the owner dies. This allows for inherited property to be sold or liquidated shortly after the owner’s death with little to no capital gains taxes assessed on the sale of the property.


Proposed changes under a Biden presidency would either (1) eliminate the step-up basis rule for inherited property and impose a carryover basis rule for inherited property or (2) impose recognition of gain on property at the owner’s death.


If these changes are implemented along with the changes to the estate tax laws discussed above, many estates could see significant tax bills at the death of the estate owner.


What to Do in the Meantime


Although it may be too early to know exactly what the tax laws will look like in 2021, we can still take some concrete steps to prepare while we wait for answers. Tax issues, while certainly important, should not overshadow the need to get your affairs in order in case of an untimely death or disability. If it has been some time since you reviewed your estate planning documents such as wills, trusts, powers of attorney, and healthcare documents, now is a great time to do so. Reviewing these important aspects of your estate planning can go a long way toward creating peace and security for you and your loved ones in these uncertain times.


Hamrick Law is Here to Help


No one knows for sure what the future holds for our country. However, what is certain is that we will continue to monitor the latest tax law developments closely and keep you updated as they unfold. In the meantime, if you have any questions or concerns, please do not hesitate to contact us. We are here for you.

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