The proposed tax plan would impact the estate planning of many Americans.
In leadership transitions, you can expect changes.
You can see this with college athletics.
When one coach is fired and a new coach is hired, the new coach selects a team of assistant coaches and new recruits.
One may argue this is why the University of Kansas struggles to improve its football program.
According to a recent CNBC article titled “Wealthy may face up to 61% tax rate on inherited wealth under Biden plan,” significant changes are commonly made after new governmental leadership comes into authority.
I laugh whenever I hear about “permanent” tax laws.
You can see this in the tax plan recommended by President Biden.
What does this new tax plan propose?
Biden would like to both eliminate the “step-up in basis” and nearly double the top tax rate on capital gains.
What does this mean?
Currently, when a person owns an appreciated asset and dies, the value of the asset is “stepped up” to the fair market value as of the date of death.
This means the heirs will not need to pay a capital gains tax on the appreciation in value from the original date of ownership by the decedent.
Instead, if the asset is sold, then the capital gains will be owed only on the increase in value from the date of death to the date of sale.
This can save families and individuals significantly when it comes to inheriting the family home, farm, ranch or business.
Those families with significant assets who are transferring wealth could find they owe taxes with rates up to 61 percent for inherited wealth when accounting for the federal estate tax and the capital gains tax.
The combined tax rate has not been this high in about 100 years.
Families or individuals who started a business that has grown in value or hold significant stocks will see a significant rise in their tax bill.
If an individual dies in a state will a state estate tax, then an even greater chunk of the estate will be owed to the government.
The tax plan has not yet been passed.
In fact, there is speculation it will not get through congress.
Many moderate Democrats may push back against raising the capital gains tax rate to 39.6 percent and eliminating the step-up in basis.
Even if tax plan were passed, working with an experienced estate planning attorney may minimize taxes owed at your death.
Reference: CNBC (May 3, 2021) “Wealthy may face up to 61% tax rate on inherited wealth under Biden plan”