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You may have been reading or heard what Mr. Biden wants to do with our Federal Estate Taxes, or to put it another way—-you SHOULD BE INTERESTED in what Mr. Biden PLANS TO DO with our Federal Taxes (we’ll address Mr. Murphy’s New Jersey plans later in our next article).
First a little history so you can understand where we have been, where we presently are and most importantly where we are headed bearing in mind the simple concept that every president in modern history wants and does create his own Estate Tax Plan.

 

President

Obama

Trump

Biden
(Proposed)

Estate and Gift Tax Exemption Amounts before Taxation Commences

 $5,490,000 per individual / $10,980,000 per married couple

 $11,700,000 per individual / $23,400,000 per married couple

 $3,000,000 or $3,500,000 per individual / $7,000,000 per married couple

 Existence of Step-Up in Basis for Computing Capital Gains Tax

 

YES

YES

NO

Estate, Gift and Tax Rates

40%

40%

45%

 

So, since Mr. Biden is working with a fully Democratic Congress, pushing through his agenda is not going to be “that difficult”. Mr. Biden wants to reverse almost everything that Mr. Trump did who in fact worked to reverse almost everything that Mr. Obama did—welcome to Washington! Mr. Biden intends to pass into law his Estate Tax plan which will lower the “EXEMPTION NUMBER” (the amount) before federal taxation commences to $3,000,000 or $3,500,000; this is reducing the Trump exemption number of $11,000,000.

Additionally, Mr. Biden plans to increase the estate tax rate on any amount over the $3,000,000 or $3,500,000 to 45% from the Trump and Obama estate tax rate of 40%. Also, Mr. Biden may make his Estate Tax law retroactive to at least January 1, 2021— Mr. Obama created this retroactive concept with his estate tax revision and survived any challenge to the issue of it being retroactive.

Many individuals that anticipate the Biden laws are very actively communicating with my office to create, for example, a “Dynasty Trust” (or other entity to protect their assets from ALL taxation) and funding the trust with highly appreciated assets ALL while paying NO Gift Tax on the transfer from themselves to the trust under the present Trump law. Assets are transferred into the Dynasty Trust for a multitude of reasons, please consider the following: (a) the asset is removed entirely from the individuals estate because it is now owned by the trust and not the individual —-this permits the asset to grow in value tax free for multiple generations ; (b) the assets in the trust are shielded from poor decisions of the beneficiaries because the trustee (or the holder of a “Power of Appointment”) makes the decisions, not the beneficiary) ; (c) the assets held by the trust are protected from creditors and ; (d) the assets are shielded from claims of the to be ex-spouse in a divorce proceeding.

Also, Mr. Biden plans to include the long term capital gains on an asset to be taxed at a maximum of 39.6% which is the highest INCOME TAX rate, this is an increase from the current Trump 20% capital gains tax rate that is imposed on long term capital gains. Mr. Biden accomplishes this increase in INCOME TAX (not estate taxation) by repealing the “stepped up” value assigned to an asset which is the market value assigned to the asset upon the date of death. By the elimination of the “stepped up” value assigned to the asset, the result is the asset is taxed by calculating the tax using the original cost basis, resulting in a HUGE INCOME tax expense! This change is huge, under present law property inherited receives a date of death market value assignment to the property (referred to as the “stepped up” basis) so the owner/beneficiary pays a very significantly lower capital gain tax i.e. 20%, or even zero taxation, under the present Trump law verses up to 39.6% under Mr. Biden’s proposal.

Some other thoughts for your consideration:

  • Under the present Trump law, the marginal corporate tax rate was reduced to 21%; under Mr. Biden’s proposed law the corporate tax rate would be increased to 28%.
  • Under the present Trump law, the marginal income tax rate was reduced to 37%; under Mr. Biden’s proposal, this top income tax rate would increase to 39.6%.
  • Under Mr. Biden’s proposal, the maximum cap on Charitable Deductions would be 28%, which is the cap on deductions originated by Mr. Obama in 2010.
  • Biden has suggested providing new home buyers a tax credit of $15,000.00, referred to as The First Down Payment Tax Credit which can be utilized by first time home buyers reducing their initial costs and fees associated with a first time real estate purchase.

It really is time for our consultation.

Steven W. Tarta, Esq.

April 2, 2021


Tarta Law Firm NJSteven W. Tarta, Esq. brings more than 45 years of professional experience to his practice, with a sophisticated focus on Estate Tax Planning, Living Trusts and Elder Law.

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