Biden’s Tax Plan: Income & Estate Death Tax for Wealthy Taxpayers

It’s no surprise that once Joe Biden takes office in 2021, some of his initial actions will likely revolve around his plans and campaign promises to increase taxes on Americans of at least moderate wealth (those earning a minimum of $400,000 per year). However, one less-known caveat is the effect Biden’s taxation plans will have on estates should his plans come to pass.

At this time (December 2020), the unified federal estate and gift tax lifetime exemption sits at $11.58 million ($23.16 million for married couples). This exemption is set to expire on December 31, 2025, which will result in it reverting back to an exemption in an estimated amount of $6 million, affecting an estimated 7 million American families. However, one Biden proposition would include rolling back the lifetime exemption rate even further to $3.5 million, meaning any assets in the estate at the time of death over the $3.5-million-dollar threshold would be subject to today’s estate tax of 40 percent. There is concern that Biden could also accelerate the sunset provision of the $11.58 million exemption, resulting in this occurring much sooner than 2025. Further, additional Biden proposals include not only lowering the amount of exemption for estates but also raising the estate tax from 40 to 45 percent.

In addition to Biden’s plans for estate tax, concerns have also arisen regarding his plans to increase the capital gains tax rate for those earning greater than $1 million to 39.6 percent and terminate the tax code’s step-up provision that currently allows heirs to bypass taxes on gains accumulated before death. In addition, the estate would be subject to income taxes on the transfer of assets to heirs at death. The unrealized appreciation would be taxed to the estate on the transfer of assets to heirs. If this takes effect, compounded with the 3.8 percent Net Investment Income Tax, estates would face an immediate 43.4 percent income tax at the time of death under Biden’s plan. Further, on assets having unrealized appreciation, the estate will be paying income taxes at 43% and estate taxes at 45%. This equates to a combined effective tax rate of 71%.

These changes could result in millions in additional taxes being taken out of the estate instead of that wealth being passed along to heirs and named beneficiaries. Bearing that in mind, now could be the time to act in order to ensure that your loved ones receive the bulk of your assets rather than having it taxed away. For more information about how to maximize the assets passed on by your estate, call Bill Hesch to set up a free consultation at 513-509-7829.

(Legal Disclaimer: William E. Hesch submits this blog to provide general information about the firm and its services. Information in this blog is not intended as legal advice, and any person receiving information on this page should not act on it without consulting professional legal counsel. While at times Bill Hesch may render an opinion, Bill Hesch does not offer legal advice through this blog. Bill Hesch does not enter into an attorney-client relationship with any online reader via online contact.)