“Wealthy families could face combined tax rates of as much as 61% on inherited wealth under President Biden’s tax plan, according to a recent analysis,” Robert Frank writes in cnbc.com.
When we break down this statement for Geyer Law clients who fall into the “wealthy” category, we explain that the 61% is based on specific Biden proposals relating to capital gains tax and the scheduled decrease in the federal gift and estate tax exemption taking place in 2026. The capital gains tax changes are part of the President’s American Families Plan. If enacted, these proposals would (in combination with the estate tax):
- nearly double the top rate on capital gains, raising it to 39.6%
- eliminate the “step-up basis” on inherited appreciated assets above $1M
Traditionally, the Tax Foundation explains, the transfer of assets from generation to generation was not hit by both the capital gains tax and the estate tax at the same time. Eliminating the step-up would nearly double the effective tax rate that the same asset would face today. “Congress has historically understood that it was bad policy to levy a capital gains tax and estate tax on the same assets.”
Meanwhile, real estate investors may also have cause for trepidation concerning the American Families Plan. In a second cnbc.com piece, Kate Dore adds that. Biden’s plan abolishes the right to defer taxes on property gains over $500,000. That change would nix a certain tax strategy real estate owners can now use called 1031 like-kind exchanges, in which profits from one property are rolled into another to defer paying tax.
“Anybody with wealth needs to plan,” New York estate planning attorney told Kiplinger columnist Janet Kidd Stewart.. “If the gift tax exemption is cut a lot, it will shut down many ways people reduce their taxable estates.”
At Geyer Law, we couldn’t agree more. In every era and at every age, estate planning ensures control over your assets ad documents your wishes in case of unexpected incapacitation or death. For those who have accumulated substantial wealth, this year is proving to be a particularly crucial time calling for the most detailed level of tax and estate planning.
– by Rebecca W. Geyer