If you and I have spoken about your estate planning strategy, you have probably heard me suggest that Biden and the Democrats were going to make some changes to the federal estate tax law. This week, Biden unveiled some proposed changes.
The federal estate tax exemption is currently extremely high at $11.58 million per person. This means that you can leave $11.58 million to your loved ones without estate tax consequence. The biggest surprise is that the estate tax exemption will not change, as previously discussed, according to Biden’s The American Families Plan. That leaves many of us untouched by the estate tax. That's the good news.
Now, onto the not so good news. Biden is attempting to remove stepped up basis. This means that currently, when a decedent passes away, the assets they leave behind get a step up in tax basis. In sum, this saves beneficiaries and heirs a lot of money when it comes to selling those assets. It can lessen and even completely eradicate capital gains taxes. Biden’s proposal will eliminate that step-up. Since this will result in a significant tax for many of us, there are thankfully some exceptions. Gains of less than $1 million, or $2 million, per couple would not be taxed.
Let's not hit the panic button yet. This proposal is not law yet. The Democrats have a slim margin and this would be a hit for a lot of citizens. So, the answer right now is to wait and see...
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