Bidens Agenda: Affecting Your Estate

While many of the issues Biden has prioritized have begun to be addressed, many of them are still in their infancy, with the details of how they will be implemented and funded still to be determined. The following steps have already been implemented or proposed in Biden’s plan:

  1. In early March, Biden signed a $1.9 trillion COVID-19 relief bill (named “The American Rescue Plan”), providing stimulus payments, unemployment benefits, and child tax credits to millions of Americans to help stimulate the economy.
  2. On March 31, through the “American Jobs Plan,” Biden outlined a nearly $2 trillion infrastructure and jobs plan that is to be funded primarily through a corporate tax hike and additional measures designed to discourage U.S. corporations from moving their operations overseas to reduce or eliminate U.S. taxation (i.e., “offshoring”).
  3. The American Rescue Plan also allocates significant funding for providing vaccinations to all Americans at no cost if needed, and additional funds to help the nation’s food service industry and K-12 schools survive the financial impacts of the pandemic.
  4. The proposed “American Families Plan” by the White House in late April is also designed to help families cover basic expenses, gain greater access to health care insurance, and reduce child poverty through the use of child tax credits and similar measures.

These large spending bills, both passed and proposed, will need to be funded in some manner. Currently the following are some of the changes to the tax laws that could have a significant impact on your estate planning:

  1. Increase IRS enforcement efforts of wealthy taxpayers. The White House has determined that significant tax revenues are being left on the table due to the inability of the IRS to enforce current tax laws. Biden has proposed increased funding of the IRS to enforce laws against tax avoidance abuses and increase audits to ensure taxes that are in fact owed are being assessed and collected.
  2. Elimination of the rule of step-up in basis at death. This proposed change to the tax code would eliminate the benefit of receiving a step-up in tax basis on inherited property in the hands of a deceased individual’s heirs and beneficiaries for gains in excess of $1 million (or $2.5 million per couple when combined with existing real estate exemptions). This could result in significant capital gains taxes being assessed upon the sale of the property once it has been inherited. However, certain exceptions to this rule for small business owners and farmers would be preserved under the proposed legislation.
  3. Increases in top income tax rate. Another Biden proposal under consideration is the increase in the top individual tax rate from 37 percent to 39.6 percent and elimination of the lower capital gains tax rates otherwise available for those earning over $1 million annually. Rather, capital gains would be taxed as ordinary income for those earning over $1 million annually.
  4. Reducing potential benefits of 1031 exchanges. The President is calling on Congress to reduce the benefits available with the special tax break that allows real estate investors to defer paying capital gains taxes when they exchange properties.

Flexibility Is Key in These Uncertain Times

We are living in a time of significant uncertainty when it comes to estate planning and the economy. As a result, it is more important than ever to ensure your estate plan is designed in a way that enables you to move quickly and take advantage of estate and tax planning opportunities that may arise or those that may be eliminated soon.

Additionally, there remain many non-tax-related reasons to keep your estate planning up-to-date and relevant to your current circumstances:

  • Protecting property for the benefit of your loved ones. Careful estate planning can do more than just avoid taxes. It can also ensure that your loved ones are the only people to benefit from your wealth by protecting inheritances from threats such as lawsuits, bankruptcy, divorcing spouses, and poor management and spending habits. By using various estate planning techniques such as trusts, LLCs and family limited partnerships, and exempt property planning, significant protections can be created for your loved ones.
  • Avoiding probate courts. Quality estate planning frequently incorporates a variety of probate avoidance techniques, such as using fully funded trusts, proper beneficiary designations, and lifetime transfers to beneficiaries. By avoiding probate, you can ensure that your family’s privacy is maintained and prevent needless court interference and challenges to your estate planning.
  • Planning for incapacity and long-term care. Using powers of attorney, healthcare directives, trusts, and healthcare privacy information authorization documents, you can ensure that only those whom you trust to manage your healthcare decisions and finances are the ones to do so if you ever become incapacitated.

Keeping abreast of the whirlwind of changes in the law and the economy can be a tall order for anyone when it comes to maintaining an estate plan. That is why having an estate plan with appropriate provisions that allow for flexibility is so important. We are prepared to keep you apprised of the legislative changes that are headed our way and will help you stay informed so you can move quickly if changes to your estate plan become necessary.