January 26

Biden Estate Tax Plan repeal of the stepped up basis and require huge capital gains tax

Cortes Law Firm Oklahoma City Estate Planning Attorney

I get it, I really do. A lot of you are worried about what effect a Biden administration, a President Biden administration will have on your estate plan. Believe me, we are getting several emails and phone calls from folks just like you worried about what to do. And I've had enough conversations, that it was important to make this followup video to go over the proposals discussed during the campaign and President Biden's transition, and that we discussed in the last two videos. So, let's get into it. In our last two videos, I discussed the new gift and estate tax numbers for 2021. So let's recap them very quickly in this video. As you know from watching those two videos from last week, the gift tax exclusion remains the same at $15,000. Go back and watch that video on the 2021 numbers to see how that can benefit your giving to your children and others that you might wanna help. The estate tax exemption is indexed with inflation. It goes up every year with inflation. The estate tax exemption increases in 2021, this year, to $11.7 million per person and $23.4 million for a married couple. Wow, that's a lot of money. I know you guys are worried about the changes. But, let me start by saying that the $11.7 million estate tax exemption for individuals and the $23.4 million for a married couple only affects less than 0.05% of Americans. Did you get that? It only affects less than half a percent of the United States taxpayers. Keep that in mind when we talk about any proposed changes, or you hear about any proposed changes in the news. Remember, it usually only affects a very small amount of taxpayers. As I said in our last video, President Biden's administration discussed here in the transition, and his campaign, the possibility of decreasing the federal state tax exemption amount from $11.7 million to $5 million per individuals. This would still be a whopping $10 million for a married couple. And it'll most likely continue to be indexed with inflation as it has always been. Unless 98% of Americans all win the lottery at the exact same time, these proposed numbers are only going to hit a very small percentage of taxpayers here in the United States. There has also been talk that he might reduce the federal estate tax exemption even more to around $3.5 million per person and $7 million for married couples. But again, only three or 4% of taxpayers would have to worry about these numbers, even if they were reduced down to the $3.5 million and $7 million for married couples. However, there has been talk that President Biden might wanna repeal the stepped up bases on death and consequently taxed unrealized capital gains at death. What does that mean? Let's look at a very, very simple example of what this could mean. Right now, if you had bought your house, say, several years ago, decades ago for $30,000, and at your death, it's worth $100,000, then your heirs inherit at a 100,000 value, and do not pay taxes on the capital gains, or the $70,000 increase in value. They inherit the house at the stepped up basis of $100,000. In other words, the value of the house at the time of your death. If your heirs hold on to the house for a certain amount of time and sell it for $120,000 after your death, then they must pay the capital gains on $20,000. That's the difference between the stepped up basis of $100,000 that they inherited it at, and the price they sold it for later on at $120,000. Now this is an oversimplification on how it works, and a lot of other factors go into the calculation, but that's for another video. What people are worried about in a President Biden estate plan is the repeal of this stepped up basis. Let's go back to our very simple example. Under a theoretical Biden plan, if you bought your house for the same $30,000 decades ago, and at your death it is worth $100,000, then your heirs might have to pay capital gains on $70,000. And again, a lot of other numbers go into that calculation, and this is just an oversimplification that is a great example of what could happen. And like I said, it's all just theoretical. The truth is, no one knows guys. No one knows what's gonna happen in the next few months or even the next four years. Even with the same party in the White House and in Congress, any changes to the tax hall are going to have some serious debate and some serious compromise. Because the United States Senate is equal at 50 seats and 50 seats, many people believe that President Biden can get whatever the President wants because he'll have Vice President Harris to break any votes. In other words, he can always get what he wants with 51. The truth is, it really means there is a sharing of power in the Senate, and long-term rules like the filibuster remain in effect. To avoid a filibuster, there must be at least 60 votes in favor of any particular piece of legislation. You see where I'm going with this? That means that any new laws or Amendments are going to require a combination of at least 60 votes from both sides of the political aisle to avoid a filibuster. Further, it's not written in stone that every legislator in President Biden's own party is going to agree with reducing the federal estate tax exemption, or even repealing the stepped up in basis. Every legislator, no matter what party, must go back to their own voters, and depending on where they live and the cost of living in those communities, changes to the estate planning laws could have a significant effect on their communities. And consequently, how that legislator is going to vote. A lot remains to be seen, and I don't believe folks should be making drastic changes based on panicked possibilities. It is generally believed that President Biden is a moderate and not in favor of liberal policies that tax the rich. The truth is, we don't know what the future holds. Any changes to the estate planning laws are going to take significant compromise and agreement from both sides of our political parties here in the United States. What can you do? Stay informed, like always. Educate yourself. Make certain to meet annually with your estate planning professional and estate planning attorney to see if any changes either in the laws or even in your personal life will have an effect on your estate plan. I know I've thrown a lot at you today, so that's why we've prepared our free guide on estate planning. I'll put a link to it in the description below and in the comments section below that so that you can download it and get started in the right direction. And to help you out even more, watch this video up here and this video up here. If you enjoyed this video, then guys please smash that Subscribe button, and click on the Like button. And also click on that little bell so you'll get notified every time we post a new video. Have a great day and an awesome week, and as always, thanks for watchin'.Enter your text here...


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