What Effects Will The Biden Administration Have On Estate Planning?

Editor’s Note: James Cote formed Cote Law Offices in 2011 and practices in residential and commercial real estate conveyancing, family law, land use, litigation, business law, divorce and family law, and estate planning and probate administration. is admitted to practice before all Massachusetts courts, the United States District Court, and the United States Bankruptcy Court for the District of Massachusetts.

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Whenever a new administration takes office it is imperative that those clients with current estate plans should contact their attorney to review the plan in light of proposed tax changes. It is also an excellent time to consult an attorney if one does not already have a plan. With Democrats controlling the White House, the House, and Representatives, and with the ability to break a tie in the Senate, the proposed changes have a good chance of passing in Congress and being signed into law by the President. There has been a lot of coverage of President Biden’s proposed changes to the tax laws, including reducing the federal estate tax exemption and eliminating the step-up income tax basis rules. Recently, some senators have come out with proposed bills that seek to make drastic changes to the tax laws, including the estate tax. Reviewing some of these potential tax law changes with your attorney can assist clients with the proper estate planning strategies before these bills become law.  Here is a brief review of some of the proposed changes.

1. U.S. Sen. Bernie Sanders introduced a bill called the “For the 99.5 Percent Act.” It includes federal estate tax rate increases to 45% for estates over $3.5 million with further increased rates up to 65% for estates over $1 billion. The basic exclusion amount will be a $3.5 million estate tax exemption and a $1 million lifetime exemption for gifts. These proposals, if enacted, would become effective for individuals dying after Dec. 31, 2021. This includes any transfers that apply to descendants who are two or more generations below the transferor, known as generation-skipping transfers (GSTs).

Currently, annual exclusion gifts of present interest are permitted up to $15,000 per donee. A donor may make such gifts to an unlimited number of donees. This bill changes the amount to $10,000 and imposes a new annual limit on the donor not allowing annual exclusion gifts to exceed twice this amount in any one year. This provision would go into effect beginning Jan. 1, 2022, if this bill is enacted in 2021.

2.Several senators have proposed the Sensible Taxation and Equity Promotion (STEP) Act. It would tax certain amounts of unrealized gains received by heirs when they receive assets at death. It provides for modification or the substantial elimination of the stepped-up basis rules. One million dollars of assets would continue to receive a stepped-up basis plus up to $500,000 for personal residences. The legislation allows taxpayers to pay the tax in installments over a 15-year period for capital gains that apply to any illiquid asset like a farm or business. Estates that incur estate tax will be allowed an offset deduction for income taxes paid.

3.Several Senators are calling for a complete repeal of the estate tax system.

These are just a few of many proposed changes. Now is the time to seek the advice of an attorney and get your estate plan in order in light of these and other proposed changes!