Estate Tax Exemption May Be Modified Post-Election

Former Vice President Joe Biden released a 110-page economic plan that included significant modifications to the estate tax exemption, in addition to other tax policies that could impact your estate.

Modifying the Estate Tax Exemption

Biden’s economic plan would seek to return the estate tax exemption to “historical norms.” This is a nuanced way of saying that the estate tax exemption should be reduced back to close to $5 million, rather than where the exemption is currently set at closer to $12 million.

The tax reform legislation that was passed recently included a doubling of the estate tax exemption. Specifically, the estate tax exemption was $5.49 million in 2017 and is now $11.58 million in 2020.

 In addition to reverting the estate tax to historical norms, Biden’s economic plan includes revenue enhancements through modifications to the individual income tax rate on households with taxable income in excess of $400,000, according to

Modifying Step-Up in Basis

Former Vice President Biden’s economic plan includes modifications to the tax treatment of unrealized appreciation of assets passed on at death. The plan would prohibit a tax-planning technique referred to as the “step-up in basis,” which enables heirs to minimize capital gains taxes when they sell holdings that were inherited.

By taxing the unrealized gain at death, heirs would receive a tax bill at the transfer, regardless of whether they sell or keep the inherited assets. In addition, it would not be possible to avoid the tax hit by gifting an asset to a loved one while you’re alive. The appreciation would be subject to taxes upon the transfer under Biden’s economic plan.

Changes to Capital Gains Tax

Former Vice President Biden’s economic plan also includes modifications to the capital gains tax. For example, under current law, the long-term capital gains tax rate is 20 percent for single households with more than $441,451 in taxable income and $496,601 for married-filing-jointly households in 2020. Biden’s economic plan recommends subjecting gains to the same tax rate as ordinary income for households earning more than $1 million.

Take Action to Protect Your Estate by Contacting InSight Law Today

Whether or not you believe the polls, it is apparent that the 2020 election could lead to a dramatic change in the federal tax system. As a result, you need to be proactive and contact an experienced estate planning professional to discuss steps that can be taken to plan ahead and position your estate to lessen the potential adverse effects of another round of tax reform. Learn more by contacting InSight Law today.