First Proposal -Under the current tax system, a federal estate tax is payable based on the net worth of a person at the time of his death. There is a current $11.7 million per-person tax exemption. Therefore, only assets over $11.7 million are subject to estate tax, and if a person dies with a net worth less than $11.7 million, no federal estate tax is due.
The Tax Cuts and Jobs Act of 2017 will expire at the end of 2025, causing this federal estate tax exemption cutoff to fall back from $11.7 million to $5 million. President Biden’s American Families Plan proposes further reducing this tax exemption to $1 million effective for anyone who dies after December 31, 2021. Any estate worth more than $1 million would be subject to a high estate tax rate, which Biden also proposes increasing from 40 percent to 45 percent. President Biden’s proposal subjects many more individuals to possible federal estate taxes and triggers the need for estate planning.
Second Proposal – The second major change being proposed is to eliminate the stepped-up basis of assets at the time of death. For nearly a century and under the current tax laws, when a person dies, the family can inherit the assets at their fair market value at the time of death. This means that if you bought a house for $70,000 a few years ago and now its fair market value is $100,000, your family can inherit your house at its current $100,000 value at the time of your death without paying any capital gain tax. Under the Biden plan, death is treated as if you sold your house and triggers possible capital gains taxes on the $30,000 increase in value of the family house.
Third Proposal- A third proposal is to increase the top capital gains rate from 23.8% to 43.4%.
Overall, President Biden’s tax proposals would fundamentally change the way assets are taxed at death and requires many Americans to revisit their strategies for estate planning.
For more information and a consultation, please call Supinka & Supinka PC 724-349-6768
