Most financial advisors will advise you not to design your entire estate plan on avoiding or reducing taxes; however, the following are possible changes under a Biden presidency, which you may want to take into consideration:
- The elimination of a step-up in basis when an asset is inherited. Even worse than the mere loss of the increase in basis, if an asset which was originally purchased for $5 million was valued at $10 million when inherited, it’s possible that there would be a tax burden created immediately on that $5 million gain as if the asset were sold upon death. Currently, the basis of that asset would be increased to $10 million when inherited and no tax burden would be created until the asset was sold.
- Returning the estate and gift tax exemption back to the 2017 level of $5.49 million, adjusting for inflation. The Tax Cuts and Jobs Act increased that exemption to $11.58 million. And the tax rate on any amount above this lower exemption could be as high as 45%.
- This third point was proposed during the Obama presidency and, although it has not been specifically proposed by Biden, many feel that it may be resurrected. In 2016, the IRS proposed regulations which would have eliminated minority interest discounts and lack of marketability discounts for certain assets which were transferred intra-family. These discounts apply to transfers of privately-held stock as well as units of family limited partnerships.
So, if you have valuable business interests, which are likely to appreciate further, now is the time to consider gifting strategies. Again, taxes should not be the sole reason to gift assets to family members. We recommend that you and your financial advisor consider all relevant factors when devising a comprehensive and thoughtful gifting plan.