Estate Tax Planning Under the New Biden Administration

calendar iconJuly 13, 2021

The current 2021 gift and estate tax exemption is $11.7 million for each U.S. citizen/resident. The Biden Administration has proposed significant changes to the income tax system. The tax reform proposals announced by the Administration in April and the “General Explanations of the Administration’s Fiscal Year 2022 Revenue Proposals” published by The U.S. Department of Treasury in May (the “Green Book”), both provide insights on the Administration’s proposed changes to the U.S. income, gift and estate taxes. Two of the most significant proposed changes include:

  • Reduction of the estate and gift tax exclusion currently at $11.7 million to $3.5 million
  • Imposition of capital gains tax on appreciated assets transferred during life or at death

How do I protect my assets from estate tax?

The proposed effective date for the estate and gift tax changes would be for death and transfer after December 31, 2021.

Wealthy individuals who delay estate planning until after any new legislation is passed could face many obstacles. The estate planning process can take several months and involve many components such as development of goals and objectives, execution of legal documents, changing ownership of assets and asset appraisals. Implementation now can help prevent the stress of last-minute decisions and increased costs.

Consider the following example: You have an appreciating asset (such as a business) and have not utilized any of your $11.7 million gift tax exclusion. By utilizing your exclusion now, if the Administration’s proposals become new law the reduction in the exclusion to $3.5 million could result in over $3 million estate tax savings. If the gifted asset grows at 5% over the next 10 years, the asset’s value could be more than $19 million. By executing a gift now, you not only save on potential gift and estate taxes, but the future asset appreciation is removed from your estate. In addition, if the proposed imposition of a capital gains tax on gifts made after 2021 becomes law, making a gift in 2021 instead of 2022 will avoid a capital gains tax.

Gift planning that includes privately held business interests will require valuation of the entity for gift tax purposes as well as computing discounts for lack of control and marketability. The use of qualified valuation professionals will ensure that the valuation used for gift tax purposes is respected by the IRS and not subject to a future challenge.

The challenges faced by many businesses due to the economic uncertainty induced by the impact of the global COVID-19 pandemic has depressed the values of most business, presenting a unique opportunity for maximizing the still available federal gift tax exemption. Lower valuations under the current market conditions together with the implication of the Biden Administration’s tax proposals have resulted in the need for individuals to immediately examine their estate planning. The Administration’s proposals, if passed into law, will result in significantly more tax on high-net worth individuals and families. We can assist you in the development and implementation of strategies to maximize gift and estate tax savings.   Our valuation team can assist in the valuation of assets selected for gifting.

Please contact Mike Kirkman, National Leader of Estate, Gift and Trust Services or Gus Perez, National Leader of Valuation Services to discuss potential opportunities available.