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Thought Leaders: Transitioning Your Wealth: Potential Upcoming Tax Policy Changes

With the new Biden administration, there may be future changes in tax legislation that could affect the wealthy for income, estate and succession planning purposes.

There appears to be three proposed areas of tax legislation that may affect clients looking to transition wealth and business interests down to the next generation:

  • Increase in Capital Gains Rates
  • Loss of Stepped-Up Tax Basis
  • Reduction in Estate Tax Exemption

There has been discussion of a potential increase in the capital gains tax rate to a rate that could be more in line with the higher income tax rates. Also mentioned is the removal of the stepped-up tax basis at death, which is viewed as primarily benefitting the wealthy or moderately wealthy. In 2021, the estate tax exemption is $11.7 million per person. This higher level of exemption will sunset December 31, 2025, and return to $5 million per person, adjusted for inflation. With the adjustment for inflation, it is expected that the exemption will be somewhere between $6 million and $7 million per person. However, there have been recent proposals that could reduce the estate tax exemption to $3.5 million per person and increase the top tax rate to 45% prior to the December 31, 2025, sunset date.

If you are concerned about the new proposed tax changes and are contemplating selling or transitioning your assets down to the next generation, you will want to work with your gift and estate tax advisor to run the numbers. Having the numbers will allow you to be fully informed on how the tax proposals will affect your planning decisions and desired outcomes. Timing may be critical to take advantage of the lower capital gains rates or use of the higher estate exemption.

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