The Estate Tax May Change Under Biden, Affecting Far More People

If this change came to pass, people of greater wealth might switch the assets they put into trust, said Edward Reitmeyer, a partner in charge of tax and business services at Marcum, an accounting firm. People with access to more sophisticated planning could put assets with greater embedded capital gains into a trust and leave others — like cash — directly to heirs.

This strategy would minimize the capital gains tax their heirs would pay. But it’s not hard to see how people without access to sophisticated tax planning would be hit with the tax.

For the very wealthy, the concern over the estate and gift taxes is that the federal exemption level will be decreased — Mr. Biden has said as much — and that the tax rate could be increased.

With Democrats controlling the legislative and executive branches, there is concern that the exemption level could drop to $5 million or even $3.5 million, where it was when President Barack Obama took office. (The current level, which was set in the 2017 tax overhaul, is expected to sunset in 2025.) For the wealthiest in the country, the bigger concern is the rate itself. It’s now at 40 percent, but it was as high as 55 percent in 2001.

Possible changes to the exemption rate have weighed on wealthy Americans, who face a choice of whether to use the tax benefit now to make a large gift before any changes can become law or wait to see how the year plays out.

Some wealthy people are concerned that a Biden administration could make estate and gift tax changes retroactive to Jan. 1, said Marya P. Robben, a partner at the law firm Lathrop GPM. In anticipation, they’re looking to make big gifts now to take advantage of the gift tax exemption.

“If I didn’t give it away earlier, I should do it now,” Ms. Robben said of her clients’ mind-set. “If the change to the estate tax is not retroactive, then I’m better off. If it is retroactive, then I’m no worse off than I am now.”

Article source: https://www.nytimes.com/2021/01/15/your-money/estate-tax-biden.html