Estate Tax Changes: The Biden Administration & Your Estate Plan

As of last week, President Biden took office. With the administration change, there will also likely be a change in federal estate and gift tax policies. 

President Biden is expected to reduce the tax exemption for estates and gifts and increase the tax rate on transfers. With a Democratic majority in both houses, it is highly possible Biden’s plans will become law. 

Even though the White House will focus on more pressing matters like the pandemic, it’s important to keep in mind the kinds of changes you should expect:


1.    A decrease in the federal estate tax exemption.  We have long enjoyed an extraordinarily high estate tax exemption of $11.58 million per person.  Thus, anyone can pass on $11.58 million in assets to beneficiaries without triggering any federal estate tax.  Married couples can pass along double that amount - $23.6 million - to their beneficiaries.


Although this legislation was already expected to “sunset” (or fade out) on December 31, 2025, it is likely that Biden will work with Democrats on lowering the current exemption limit now, and not later and will likely make an aggressive change to the exemption.  Biden has proposed lowering the exemption to $3.5 million estate with a $1 million gift. This will affect significantly more people than the current $11.58 million.

2.    An increase in transfer tax.  There is also a potential for the applicable tax rate to include an increased top tax rate of 45 percent.

3.    Elimination of step-up basis.  This change will impact homeowners, and owners of assets like stock shares. Currently, when a person passes away, assets in their estate typically receive a basis step-up in basis upon death.  This is significant because capital gains tax is used to calculate capital gains.  With a step up in basis, the potential for capital gains is decreased or eliminated. Biden seeks to remove the step-up in value all together.  

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