By Joseph E. Balmer   |   April 17th, 2021

Will The Basic Exclusion amount Be Lowered For Estate/Gift Taxes in 2021?

President Biden Proposes Lowering The Basic Exclusion Amount For Estate/Gift Taxes – What Does This Mean For Your Wealth?

exclusion amount estate planning gift taxesWith President Biden now in office, many are expecting Congress to enact changes to gift, estate and/or income tax laws to generate revenue. What are some of those changes and what do they mean to the state planner?

President Biden has proposed lowering the basic exclusion amount for estate/gift taxes, which was almost doubled in 2017. The exclusion amount in 2017 was $5.49 million and in 2020 it was $11.58 million. For spouses, that amount is basically doubled to approximately $23 million. During his campaign, Biden proposed lowering the exclusion amount to $3.5 million and increasing the potential estate tax from 40 percent to 45 percent. Some have predicted that Congress will reduce the exemption to $5 million, which was the amount of the exclusion (adjusted for inflation) before the Tax Cuts and Jobs Act of 2017.

Either way, this could result in a tremendous tax hit for the extremely wealthy. That is why many estate planning attorneys are advising their clients with great wealth to make gifts now. This can be done with outright gifts or gifts to irrevocable trusts. Making gifts now utilizes the basic exclusion amount currently available for estate and gifts before the amount is possibly reduced.

Making Gifts Now Could Preserve Wealth Should Future Changes Occur

Another possible change being proposed is the elimination of the step-up basis on appreciated assets when one passes. This change would affect many more individuals than just the super-wealthy. Currently, if a stock is bought for $1 and worth $5 when the owner dies, the gain is $4, but the beneficiary gets a step-up basis in the stock to $5 and doesn’t have to pay tax on the $4 gain. When the new owner sells the stock, he or she only has to pay tax on the appreciation from $5, not $1.

Under the proposed changes the beneficiary would either assume the decedent’s $1 basis or possibly even have to pay capital gains tax on the $4 gain at the time of death. With the effect that such a change would have on appreciated securities and real estate, it would affect many more middle individuals than the reduction in the estate/gift tax exclusion. Many individuals may have to sell assets to pay the capital gains tax when they would otherwise prefer to keep them. Once again, making gifts now or locking in the basis of assets is a possible way to preserve one’s wealth should such changes occur in the near future.

Some are wondering that if/when Congress makes such changes, will they be made retroactively? While probably not, it is the reason that a lot of financial advisors are advising to make gifts now. You may be better off if you do but you certainly won’t be worse off, they advise. Regardless, these are issues certainly worth following, and if you think that they may affect you, would be worth discussing with your financial advisor and estate planning professional.

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At Holzfaster, Cecil, McKnight & Mues, located in Dayton, Ohio, top-notch estate planning doesn’t need to be complicated or expensive! To learn more, go to our website at www.hcmmlaw.com. Or, please contact us at (937) 293-2141 to schedule an appointment for an initial consultation which can be conducted either by phone, Zoom or in person.

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Joe Balmer Trusted Dayton Estate Planning Attorney

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About The Author: Joseph E. Balmer
Joseph Balmer manages the Probate, Trust and Estate Administration department at Dayton, Ohio, law firm, Holzfaster, Cecil, McKnight & Mues, and has been certified by the Ohio State Bar Association as a specialist in Estate Planning, Trust and Probate Law since 2006.

ESTATE TAX CHANGES AHEAD? THE TIME TO GIFT MAY BE NOW…
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