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Biden Administration May Spell Changes to Estate Tax and Stepped-Up Basis Rule

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Kelleher + Holland, LLC

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Apr 02, 2021

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A new administration usually means that tax code changes are coming. While it remains unclear exactly what tax changes President Bidens administration will usher in, two possibilities are that itwill propose lowering the estate tax exemption and eliminating the stepped-up basis on death. The first would affect only multi-millionaires, but the second could have an impact on more modest estates and their heirs.
In 2017,Republicans in Congress and President Trump doubled the federal estate tax exemption and indexed it for inflation. For the 2021tax year, the exemption is $11.7million for individuals and $23.4million for couples. As long as your estate is valued at under the exemption amount, it will not pay any federal estate taxes, and the vast majority of estates do not owe any tax. President Biden has expressed an interest in lowering the estate tax exemption. It could be more than halved to $5 million or even reduced to the previous exemption of $3.5 million for individuals.
Another possible tax change is to how property is valued when it is passed on at death. "Cost basis" is the monetary value of an item for tax purposes. When determining whether a capital gains tax is owed on property, the basis is used to determine whether an asset has increased or decreased in value. For example, if you purchase a stock for $10,000, that is the cost basis. If you later sell it for $50,000, you will have to pay taxes on the $40,000 increase in value.
Under current law, when a property owner dies, the cost basis of the property is "stepped up." This means the current value of the property becomes the basis. For example, suppose you inherit a house that was purchased years ago for $50,000 and it is now worth $250,000. You will receive a step up from the original cost basis from $50,000 to $250,000. If you sell the property right away, you will not owe any capital gains taxes.
According to an article in theNew York Times, the current administration may proposeto eliminate the basis step-up rule. In the past it was difficult to determine the original cost basis of some property, but in the digital age that information is more easily gathered. The change could result in tax increases for some people inheriting property that has risen significantly in value.
Another question is whether eitherof these changes will be made retroactively. It is unlikely, but possible, that if Congress changes these rules later in the year, they could be made retroactive to the first of the year.
If you are concerned about these rules changing, a trust may be a good way to protect your estate. Property in a trust passes outside of probate, and there are specific types of trusts that are designed to protect assets against estate taxes and capital gains. Talk to your attorney to determine if a trust is right for you.
Tax experts agree that while changes to the tax code are likely, they probably wont happen right away. The coronavirus pandemic and the recession it has triggeredmean that Congress has other priorities at the moment.
Please contact us to discuss your Estate Plan and tax planning options.
Written & Submitted By: Jo-Anne Jeffreys, Elder Law- click here for more information*
Click Here for Original Blog Link*

Biden Administration May Spell Changes to Estate Tax and Stepped-Up Basis Rule

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Kelleher + Holland, LLC

Estate Planning 1100 5th Avenue South, Naples, Florida, 34102

Kelleher + Holland, LLC attorneys offer assistance in a wide variety of legal services. With extensive experience, as well as offices in Florida and Illinois, we have the skill and knowledge you need to find answers that are strategically designed to meet the needs of your specific situation. Our Naples practice includes: Estate Planning: We help individuals develop comprehensive estate plans that protect legacies and provide peace of mind.Elder Law: We help families take the necessary steps to ensure their elderly loved ones have the care they need going forward.Medicaid Planning: We help individuals protect their assets and qualify for Medicaid benefits to cover long-term care costs.Special Needs Planning: Our plans are designed to help ensure that your loved ones with disabilities are protected and provided for, while preserving their eligibility for government benefits.Probate: Our team guides families through each step, ensuring a smooth and efficient administration of their loved ones estate.Guardianship: We provide compassionate guidance and tailored legal solutions for the well-being of loved ones. Jo-Anne Herina Jeffreys concentrates her practice in the areas of Elder Law, Estate Planning, and Special Needs Planning and is a Certified Elder Law Attorney through the National Elder Law Foundation. She is an adjunct Professor of Law at Ave Maria School of Law in Naples, Florida, where she teaches Wills, Trusts, and Estates. As a member of the Special Needs Alliance, Jo-Anne is part of a national network of lawyers dedicated to serving families of individuals with disabilities. Among her many accolades, Jo-Anne has been distinguished as a Fellow of the National Academy of Elder Law Attorneys. She is also a frequent lecturer on Elder Law topics at both state and national levels, and is the co-author of Representing the Elderly Client - Law and Practice, Panel Publishers 1999, now Wolters Kluwer.