Now that President Biden has been formally inaugurated as the President of the United States and the Democrats have control of the House and the Senate, have you considered the impact that a new tax plan may have on your estate plans? There may be two potential tax changes that President Biden proposed during his campaign that could require significant changes to some estate plans.
First, the lifetime gift tax and estate tax exemption may likely be reduced. Under current law, you are able to gift away over $11 million during your lifetime or upon your death without being subject to the federal estate tax. While this increased exemption is set to expire at the end of 2025, it may be likely that President Biden and congressional democrats will accelerate this expiration and reduce the exemption to about $5 million. This decrease may require more complex estate planning for individuals or families with an estate that could be valued at $5 million or more.
Second, with the reduction of the gift and estate tax exemption, it may also be likely that the federal estate tax rate will be increased. At its current rate, everything up to $1 million is taxed at a rate of 18-39 percent and everything over $1 million is taxed at 40 percent. During his campaign, President Biden proposed increasing that tax rate to 45 percent at the highest level.
With these potentially significant changes on the horizon, now may be the best time to consult our office for assistance in reviewing your estate plan. Please contact our office to schedule an appointment.