Could Estate Taxes Change at the Federal Level?

gavel on tax paperwork

In a recent column for Forbes.com, Christine Fletcher opined about estate taxes and estate planning. The thrust of her article was based on rampant speculation that the Biden-Harris White House might move to implement new tax reform policies.

We saw the effects of this speculation at the end of 2020. Some people wanted to make their year-end financial gifts greater than usual. The thinking was that the new administration might roll back some of the tax reforms of the Trump years.

Much of this concern was centered around the estate tax lifetime exemption. That exemption is currently set at $11,000,000. As it currently stands, that high-bar exemption amount is set to expire. When the Trump administration raised that exemption level to $11 million, it did so with an end-date built in: the end of the calendar year 2025. At that point, the amount of the exemption is set to drop back down to its original level of $5 million.

But will the new White House staff lower that exemption sooner? Or might they change the 2025 reduction to be an even lower level than the expected $5 million?

Fletcher suggests that we have no reason to expect a change in the near term. The Biden administration has enough to contend with at the moment, between the pandemic and economic challenges.

She does list four other possibilities, however, that may be more likely changes. Each of these may affect your estate planning decisions.

  1. A potential increase of the estate tax rate, back to where it stood in 2001 (55%).
  2. A reduction of the gift tax exemption amount, from its current $11 million
  3. Removal of the step-up in basis at death
  4. A rise in the capital gains rate

We will, of course, be watching these developments closely as we advise our clients.

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