Smith 
One of President Biden’s campaign promises was to roll back various Trump-era tax policies and increase tax rates for the wealthiest Americans. Specifically, he plans to raise federal income taxes for those making $400,000 or more, and increase capital gains, payroll, and estate taxes. If you’re planning your estate or transferring wealth, Biden’s policies could affect your strategies.
Biden’s plan could significantly impact the transfer of wealth across generations.
What to Know About Biden’s Tax Plan
Biden’s tax plan is part of his economic stimulus package, which aims to generate $3.3 trillion in revenue over the next decade. One key change is increasing the individual income tax rate to 39.6% for those earning more than $400,000, up from 37%.
For estate planning, Biden’s plan involves halving the estate tax exemption and eliminating the "step-up in basis" rule. These changes could greatly affect how wealth is passed down through generations.
Top Estate Planning Moves to Make Right Now
Here are five estate planning actions to take in response to Biden’s tax plan:
- Take Advantage of the Estate Tax Exemption
Biden plans to reduce the estate tax exemption to $3.5 million and raise the top estate tax rate to 45%. If you haven’t started estate planning, now is the time to create a framework and decide if you want to use the current estate tax exemption before it changes. The current estate tax laws are set to expire in 2025, but reforms could happen sooner.
- Maximize Low-Interest Rates
With federal interest rates at historic lows, it’s a good time to use wealth transfer strategies like grantor-retained annuity trusts (GRATs), charitable lead trusts, and intra-family loans. These strategies work best when interest rates are low, so act now if you’ve been considering them. Work with your advisor to find the best approach based on your family’s needs.
Setting up a trust takes time and may involve legal paperwork, so start planning early. Though you can wait to file the paperwork until you’re ready, having it prepared means you can act quickly if market conditions change.
- Communicate to Heirs
While rushing to complete your estate plan, don’t forget to communicate your intentions with your heirs. This clarity will help avoid future disputes. Have a meeting with your heirs to review your estate plan, including any lawyers or estate planners who can explain your decisions.
- Adjust for Changes to Step-up in Basis
Currently, the step-up in basis provides tax benefits for inherited assets by resetting their value to current market rates, which minimizes capital gains taxes. Biden plans to eliminate this benefit, meaning heirs could inherit assets with their original purchase value.
Prepare now by discussing this potential change with your estate planning team and developing a strategy for transferring wealth.
- Find an Advisor You Trust
Biden’s tax changes can be complicated, so if you don’t have a financial advisor or tax professional, now might be the time to get one. An advisor can help you find strategies you might miss, assist in case of an audit, and develop a plan for sharing your wealth management strategy with your heirs.
Interview wealth management professionals to compare their rates and experience. Ask about consultation costs and whether legal paperwork fees are separate.
Final Word
Biden’s proposed tax reforms could significantly impact estate planning, but it’s uncertain how soon the changes will happen or how extensive they’ll be. It’s wise to prepare now, so you can quickly adjust if necessary. Estate planning involves many complex decisions and can take time, especially if you involve your heirs. Start planning now to ensure your wealth is maximized in any tax environment.
