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Regardless of your political persuasion, the Biden, Pelosi, and Schumer spending plans will cause Congress to find new ways to “tax the rich” to pay for them. The easiest place for them to look is at the estate tax and income tax provisions that affect estate planning.
Since President JFK, all of our Presidents have been looking at the elimination or reduction of the stepped-up basis provisions of the Internal Revenue Code. When an individual dies their tax basis (or what they PAID) for the property being handed down to the next generation is its date of death value not what they paid for the property. This means that unrealized capital gains escape income taxation. Because of this, a very significant amount of income from appreciated assets avoids capital gains taxes. While various tax proposals may provide some exemption from this tax, the dollar amount of these exceptions goes down on a regular basis.
Another proposed change is that transfers to an irrevocable trust would now be a taxable event. That is why, if you are of thinking of creating an irrevocable trust, you should do it sooner than later in order to avoid the new tax on these transfers. Normally, any new taxes of this type are prospective only, meaning do it now and any changes you make won’t affect your planning objectives later on.
Also proposed as an integral part of this new tax law are plans to lower the current estate tax exemption from $11,700,000 to $3,500,000 (New York State is currently $5,930,000). With the recent rise in the stock market and the reduction in the exemption amount, more people will need to incorporate estate tax planning into their wills or trusts. This means marital deduction planning, greater QTIP trusts, renunciation trusts, and greater balancing of assets are all now back in vogue.
Because of these proposed changes, along with many others, estates that we assumed would be estate tax free may now be subject to estate taxes and even income taxes. Proper planning can reduce or eliminate most of these taxes.
How We Can Help
Ronald J. Axelrod is an estate planning attorney in Rochester, NY, and can assist you in navigating these recent changes to protect your investments. Please contact our office for a free review of your current estate planning documents. (585) 203-1020