Ever since the U.S. Presidential election, there’s been a flurry of speculation about the need for high net worth individuals to do estate tax planning given that Joe Biden will become the next President.

Keep in mind, estate tax planning for these individuals probably needed to be done prior to Dec. 31, 2025 anyways, as the current historically high estate and lifetime gift exemption of $11.7 million was set to be reduced to the 2017 amount of $5 million, adjusted for inflation at that time. However, President-Elect Biden and his tax platform may accelerate the need for planning now instead of a few years from now.

Here were some of the tax reform proposals mentioned in President-Elect Biden’s campaign that impact estate tax planning and wealth transfer ideas:

Reducing the Federal Estate and Gift Tax Exemption
Under current law, you can transfer up to $11,700,000 ($23,400,000 per married couple) during life or at  death without incurring federal gift or estate tax. Transfers more than that exemption amount are subject to gift or estate tax at a rate of up to 40 percent. 

President-Elect Biden has proposed returning estate tax exemptions to “historical norms.” Historical norms could mean lowering the estate tax exemption amount to as low as $3,500,000 per individual ($7,000,000 per married couple), the lifetime gift exemption amount to as low as $1,000,000 per individual ($2,000,000 per married couple), and the top gift and estate tax rate increasing above its current 40% rate.

Eliminating Basis Step-up at Death
Currently, for federal income tax purposes, the basis of inherited property is “stepped-up” to the property’s fair market value on the decedent’s date of death, effectively eliminating all capital gains on pre-death appreciation.

President-Elect Biden has endorsed potentially eliminating this benefit. However, it’s unclear whether his proposal is to impose a tax on unrealized appreciation at the decedent’s death or to simply eliminate the basis step-up, so that inherited property would retain the basis that it had in the hands of the decedent.

While there is no certainty as to whether the above strategies will be implemented, nor is there any ability to predict when any changes would be effective, it’s still important for you to consider taking advantage of the existing exemptions and laws prior to any possible law change.

Recently, the IRS issued final regulations that there will be no “clawback” for gifts made under the current increased estate and gift tax lifetime exemptions, even if the exemptions are subsequently lowered. This means that someone could gift their current lifetime exemption now and not have to pay any gift and estate tax on that amount if the lifetime exemption amount decreases in the future to a figure less than the amount transferred.

Taking advantage of this no “clawback” presents a special opportunity for estate and gift tax planning; whether that is before Dec. 31, 2025 or prior to any potential tax law change passed under President Elect Biden’s administration.

If you have questions about estate planning or are interested in learning more about it, please contact us today.