The upcoming election could have a considerable impact on future estate planning and gifting decisions. The budget deficit has also never been higher that it is today, and with the impact of COVID the budget deficit is only to increase. If Biden is elected, he has stated that he would propose to increase taxes on higher income households. There is no better time than now to review your estate plan to ensure that your current plans are in line with the current tax code, and also to ensure that your estate planning goals will be met if there is a change in President. I have included a couple important topics below to consider.
Federal Estate, Gift, GST Tax
The current federal estate, gift, and GST tax exemption amounts are $11.58 million per person, or $23.16 million per married couple. Currently, any gifts made during your lifetime, or at death, below the exemption amount would be exempt from federal estate or gift tax. Any amounts above the exemption amount would be taxed at a rate of 40%. These exemptions are to be cut in half January 1st, 2026.
Election Impact: Vice President Biden has discussed that he would lower the estate and gift tax exemption amounts, as well as possibly adjusting the estate tax rates.
The estate and gift tax exemption amounts are the highest they have ever been and could be substantially reduced if Biden is elected. Gifting assets outright or into Trust now will lock in your gift tax exemption amount based on 2020 rates. With the uncertainly of the exemption amounts being reduced, there is no better time than now to start the discussion with your estate planning attorney to ensure your plans will be met if there is a change in presidency.
Basis Step-Up at Death
Under the current law, appreciated assets that are distributed to your heirs would receive a step-up in basis at your death. If you bought a stock at $10/share, and it appreciated to $70 at your death, your heirs would receive a step-up in cost basis to $70/share.
Election Impact: Vice President Biden has proposed that he intends to eliminate the step-up in basis. He has proposed taxing the asset appreciation when transferred to heirs. It is not clear if the deceased’s estate or the heir(s) receiving the appreciated assets will pay the tax on the appreciated assets.
There are many people who keep assets with substantial capital gains as they are aware of the step-up in basis rule that would apply at their death. This can cause concentration issues and added additional risk in their portfolios. The benefit of keeping these types of assets could be reduced if the step-up in basis rule is eliminated. This could give clients the opportunity to sell out of concentrated positions and rebalance their portfolio.
These are just a few of the items that should be reviewed. There is no better time than now to plan for your future. Please reach out to me If you have any questions or would like to discuss opportunities that can be taken before the end of 2020.
You can reach me at firstname.lastname@example.org or (302) 510-6072.
Keith Al-Chokhachy, CFP®, CTFA
Vice President / New Business Development Officer
The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only. FSTC does not offer tax or legal advice, professional counsel should be sought for tax or legal advice.