What Tax Law Changes Might Impact my Estate Plan?

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It is important to adjust estate planning for changes in tax law.

It has been said “the only constant is change.”

People get older, trends come and go, and technology is constantly developing.

Similar to updating an operating system on your phone so it can continue to function well, estate plans should be updated regularly to align with changes in tax law.

According to a recent Wealth Management.com article titled “Capital Gains Strategies to Keep Clients on Track for Retirement,” proposed tax law legislation will impact asset transfers for many Americans.

Tax law changes may be coming down the pipeline.
Your estate plan could be impacted by possible tax law changes.

How so?

The federal government has proposed a capital gains tax increase.

This would increase tax levied on gains over $1 million.

Instead of paying 20 percent, individuals would be taxed at 39.6 percent.


Another complication is the changes may be enacted retroactively to impact these instances beginning on April 28, 2021.

It is unusual for tax law to be retroactively applied.

How might this impact your estate planning?

It may be beneficial to accelerate a gain realization before legislation is made effective even if the legislation is made retroactive but with a start date on January 1, 2022.

In other words, you are in no worse position if retroactive to the earlier date.

Another option is to make charitable gifts with appreciate securities.

This can be appropriate for tax law changes because the capital gain will not be realized if the security is donated to a charity.

Choosing to hold investments for longer periods of time can be beneficial in protecting from capital gains taxes.

In addition to capital gains tax law, retirement may also face changes.

The government may limit a step-up in a basis for inherited assets.

At this time, the step-up in basis significantly decreases the taxes owed on gains.

Fixed income investments in taxable accounts could be desirable should the step-up in basis be reduced.

At this time, Congress has not yet passed these changes to tax law.

Because the tax law is uncertain, you should review your risk profile, your retirement budget, and your estate plan.

ReferenceWealth Management.com (Sep. 3, 2021) “Capital Gains Strategies to Keep Clients on Track for Retirement”

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