How a Biden Presidency Impacts Your Estate Taxes
Barring an unprecedented last second change, Joe Biden will unseat Donald Trump on January 20th, 2021. While uncertainty is at an all-time high, it is always wise to try and look forward and plan for how the new administration affects you. One area that will almost certainly be affected is your Estate Planning.
The Tax Cuts & Job Acts of 2017
One of the many things enacted under President Trump, the TCJA of 2017 dramatically increased the amount of money a person or couple can pass down to their heirs. Prior to the TCJA, the amount of money that could be passed down tax-free was $5,490,000 for individuals, or $11,980,000 for couples. Whatever amount that exceeded these values was taxed at a rate of 40%, however, since the passing of the TCJA, this value is now $11,580,000 per person, or $23,160,000 for a couple. The initial legislation for this bill was to be in place until 2026, unless reverted sooner, which is a very strong probability under the newly elected President.
Changes to Tax Exemptions
Biden has been outspoken bout repealing the TCJA, which in all likelihood will revert the estate tax limits back to the levels prior to 2017, meaning that anything over $5,490,000 per individual will not qualify for a taxation exemption. Changes to tax law could go into place as early as January of 2021, so being prepared is crucial to sound financial planning for the coming years. With unknowns still in play for the control of the senate, the depth of the cut to tax breaks is still up in the air. However, there are a few things that you can do to prepare yourself for a 50% reduction in qualifying tax exemption. If possible, gifting assets to your children before 2021 is one strategy to avoid the cut in exemption. It is also possible in some cases to gift or sell portions of your estate to different types of trusts as you prepare to pass along your assets to your heirs. The type of trust that you chose should be discussed with your advisor, as well as Zelus’ estate planning legal counsel.
With all of the uncertainty of 2020, it’s always wise to be prepared and hedge against uncertainty going forward. If 2020 has taught us anything, it is to expect the unexpected, and we are here to provide a sense of security and knowledge in an ever-changing future.
-Colin Feller, President