Biden’s Proposed Estate Tax Changes to Stepped-Up Basis Rule

Under Biden’s proposed tax plan, the modifications to the estate tax code could affect everyone who has valuables that will be left behind to heirs. Although tax policy used to be fairly predictable, it has become quite a dynamic environment given recent changes in control of the Senate. Now that Democrats have control of the Senate, Biden now has a much clearer path to set forth his administration’s agenda. The looming question on many taxpayers’ minds: What happens once President Biden can begin to enact changes to tax policy?

Many political and tax commentators believe that it will be easier for Biden to get the tax cuts he has proposed, rather than increasing taxes. With the current focus on the pandemic and vaccination rollout, as well as the shaky economy and job recovery, there may not be any major changes to taxes until COVID-19 is in the rear-view mirror.

One of the most impactful long-term changes of Biden’s proposed tax agenda involves the estate tax., In contrast to previous changes to the estate tax targeting the high net worth individuals and their families, the tax code may be modified in a way that affects anyone who has something of value to leave to heirs.

For many years, assets were valued at the time of the owner’s death, even if the value had risen. With the established step-up in basis rule, when assets are passed on to heirs, any embedded gain is erased since the base value is higher, leading to no capital gains tax being owed. This applies to any asset, from liquid securities and private investment partnerships to a family home. Furthermore, if the total value of the estate is less than $11.7 million, or 23.4 million for a couple in 2021, no estate tax needs to be paid.

Biden’s proposed tax plan may change all that in dramatic fashion, with the elimination of the step-up. High net worth individuals should be concerned -and not just if you’re on the same level as Jeff Bezos or Elon Musk. For those who have inherited a home or stock portfolio that has appreciated in value, the potential loss of step-up would be very significant.

If this change were to happen, many may reconsider which assets they put into a trust. For example, putting assets with greater embedded capital gains into a trust and leaving cash directly to heirs.

Talley’s experienced team of tax professionals provide comprehensive tax compliance and consulting services so you can preserve, enhance, and pass on the assets and wealth to the next generation. We welcome the opportunity to discuss the current options available for you. For more information, contact us today.