Transitioning Your Wealth – Potential Tax Policy Changes with the New Administration

January 25, 2021 | Article

With the new Biden administration and the results of the Georgia senate runoff election, there may be future changes in tax legislation that could affect the wealthy for income, estate and succession planning purposes.

Recently, tax proposals and priorities related to wealthy taxpayers coming from nominated Senate Finance Chairman Ron Wyden and Treasury Secretary Janet Yellen would suggest action is in order. However, even though it appears that increased taxes may be coming under the priorities cited, will they be delayed due to other pressing matters, such as the coronavirus pandemic and the state of the economy?

Perhaps the key consideration for those that could be affected is, will this delay provide you time to take advantage of opportunities to plan for future tax legislative changes?

Areas to Pay Attention to in Your Wealth Plan
In the priorities suggested by nominated Senate Finance Chairman Ron Wyden, there appears to be three proposed areas of tax legislation that may affect clients looking to transition wealth and business interests down to the next, or lower, generation. Those areas are:

  • Increase in Capital Gain Rates
  • Loss of Stepped up Tax Basis
  • Reduction in Estate Tax Exemption

There has been discussion of a potential increase in the capital gains tax rate to a rate that could be more in line with the higher income tax rates. Also mentioned is the removal of the stepped-up tax basis at death. The stepped-up tax basis is viewed as primarily benefitting the wealthy or moderately wealthy.

In 2021, the estate tax exemption is $11.7 million per person. This higher level of exemption will sunset December 31, 2025, and return to $5 million per person, as adjusted for inflation. With the adjustment for inflation, it is expected that the exemption will be somewhere between $6 million and $7 million per person.

However, there have been recent proposals that could reduce the estate tax exemption to $3.5 million per person and increase the top tax rate to 45% prior to the December 31, 2025, sunset date.

What to Consider Next for Your Estate Plan
If you are concerned about the new proposed tax changes and are contemplating selling or transitioning your assets down to the next generation, now may be the time to take that step. This is especially true considering the proposed increase in capital gain taxes, or, if you will benefit from using the higher estate tax exemption available under the present law.

You will want to work with your gift and estate tax advisor to “run the numbers,” as these type of decisions should not be done on just emotion. Having the numbers will allow you to be fully informed on how the tax proposals will affect your planning decisions and desired outcomes.

With the tax legislative priorities noted by the new administration, timing may be critical to take advantage of the lower capital gain rates or use of the higher estate exemption. Allow yourself ample time to have planning discussions with your gift and estate tax advisors. Don’t get caught without time to make changes that are not well thought through.


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