Anticipating Estate & Tax Planning Changes Under the Biden Administration

President Biden has proposed historic changes to the federal tax law, increasing taxes on estates and high-net-worth individuals. If enacted, these changes will significantly impact estate planning, disrupt existing plans, and result in more taxes for families at death, leaving loved ones with massive liabilities.

Wealthy individuals who do not consider the impact of the potential changes or delay estate planning until after new legislation is passed could face many obstacles in the near future. Implementation now can minimize your tax liability and help prevent the stress of last-minute decisions and increased costs.

Proposed Changes

Since there is no way to know for certain when, and if, all or some of the proposed changes will be enacted, now is the time to consider the implications of the current proposals, which could take effect as early as January 1, 2022.

Two major changes proposed by the Biden Administration include:

1. Reducing the estate and gift tax exemption amount from $ 11.7 million to an amount as low as $3.5 million.
   1. President Biden proposes reducing the estate and gift tax exemption amount.
   2. Under the current law, individuals can transfer up to $11.7 million to their heirs without facing the federal estate or gift tax, the highest exemption amount ever in the history of the U.S.
   3. For example, the estate of a single person that dies today leaving assets valued at $10 million would not pay any federal estate tax. Under one proposed tax plan, that same estate would be taxable at a rate of 40% for amounts over $3.5 million (i.e., $400,000 of tax for every $1 million over the limit).
2. Eliminating the step-up in basis, imposing capital gains tax on appreciated assets transferred during life or at death.
   1. Currently, future taxes on inherited property are based on the value when it is inherited. When a person dies, the basis of the transferred asset is “stepped up” to the fair market value at the date of death, potentially saving your heirs huge amounts of capital gains taxes.
   2. For example, if a parent purchased a home for $1 million and it is inherited by a child 25 years later with a value of $5 million, if the child sells the home for $5 million, no income tax would be owed.
   3. In the same example, under Biden’s plan, the child would be subject to taxes on the entirety of the property’s appreciation. Meaning the appreciation in value since the parent bought it 25 years ago at $1 million. After factoring in the $1 million exclusion for single taxpayers, the child would immediately owe taxes on $3 million worth of the property’s capital gains.

Contact Us to Start Planning Now

It is impossible to determine which proposed changes to the tax laws will be enacted. Importantly, the changes above are effective as of the date the legislation is enacted. Accordingly, you should act now to avoid the potential impact of the new laws, which could take effect as early as January 1, 2022. However, even if the proposed changes are not passed, the current increased exemption amounts for the federal estate and gift tax will automatically expire at the end of 2025.

Considering the proposed changes and short time frame, it is crucial to consult with an experienced estate and tax planning attorney as soon as possible. The attorneys at Kelley Kronenberg can assist you in developing a comprehensive estate plan implementing forward-thinking strategies to maximize your tax savings.

Kelley Kronenberg Can Help

At Kelley Kronenberg, our experienced team of tax planning attorneys specializes in providing sophisticated legal counsel to high-net-worth individuals and families with the goal of ensuring their wishes are carried out, while minimizing or eliminating future tax liability and avoiding litigation.

As part of a cross-disciplinary, full-service, law firm, Kelley Kronenberg offers seamless collaboration with several of the firm’s practice areas, including Probate, Trusts & Estates, Business Law, Family Law, and Real Estate, to provide each client with a personalized and comprehensive estate plan that meets your goals and tax objectives. 

Kelley Kronenberg is a multi-practice, national law firm with over 400 employees, more than 200 attorneys, and 12 offices throughout Florida and the U.S., and locations in New York and New Jersey, available by appointment. We are proud to be one of the fastest-growing law firms in Florida and amongst the largest in the U.S.

Why Kelley Kronenberg?

At Kelley Kronenberg, our tax planning attorneys are equipped with the knowledge, skills, and experience to provide each client with unparalleled service across a wide range of tax, probate, and estate matters. Proper tax planning requires sophisticated legal counsel with both financial and practical experience. While most firms either litigate or draft documents, we can support you in either type of matter.

Our attorneys utilize an individualized approach to evaluate your unique situation and help you develop strategies that will minimize or eliminate future tax liability while complying with state and federal laws. We can review your estate plan, identify if and how the proposed changes may affect your plan, and identify potential strategies that can be implemented if the laws change.

As a cross-disciplinary law firm, Kelley Kronenberg is in a unique position to provide complete legal services tailored to each client’s specific needs. Our integrated team of attorneys collaborates with the firm’s other practice areas to provide a seamless and unified approach to both complex and routine matters. Our attorneys have the resources and skills to identify potential pitfalls ahead of time and offer innovative solutions to today’s most complex issues. 

We understand that the laws are complicated and planning for the future can be challenging. At Kelley Kronenberg, your best interests are our priority, and we will be there to help guide you every step of the way. Our attorneys offer sophisticated legal counsel and services, including: