Major Tax Changes Affecting Estate Planning May Be on the Horizon
Some major changes to the estate, gift, generation-skipping transfer (“GST”), and income taxes have been proposed under the Biden administration. These changes are proposed as a means of raising much-needed revenue for the federal government due to the recent tremendous government outlays for such things as pandemic relief, infrastructure improvements, jobs, and families. Under these proposals, more taxes would be collected when Americans transfer their assets during lifetime and at death. These tax changes, if enacted, would be substantial and far-reaching and could extend these transfer taxes to millions of people that are not currently affected by these taxes. As a result, many more people would need to consider the effects of these changes on their estate plans. This article is the first in a series of articles that will discuss different aspects of the tax proposals affecting estate planning.
Current Estate, Gift, & GST Tax Law versus Tax Proposals.
Some of the proposals would cut the federal estate tax exemption (meaning the amount one may transfer free of federal estate tax at death) and the federal GST tax exemption from $11.7 million per individual ($23.4 million per married couple) to $3.5 million per individual ($7 million per married couple). Some proposals would also reduce the federal gift tax exemption from $11.7 million per individual ($23.4 million per married couple) to $1 million per individual ($2 million per married couple). Unlike the current exemptions, these lower exemptions would not automatically increase over time through indexing for inflation.
The proposals would also impose progressive estate and gift tax rates that range from 45% to 65%, increasing the current estate and gift tax flat rate of 40%. Transfers in excess of the exemption amounts would then be taxed at the higher progressive rates, rather than the 40% flat rate. By reducing the estate and gift tax exemptions and increasing the tax rates, the tax proposals will significantly change estate planning for a great number of individuals and couples and will substantially increase the number of estates subject to federal estate tax.
The next article in this series will provide an overview of the three tax proposals currently before Congress, as well as demonstrate the major impact that lowering the federal estate tax exemption could have on estate planning.