5 inheritance planning steps for today


One of President Biden’s election promises was to introduce tax reforms that undo various Trump-era policies while increasing tax rates for some of the richest Americans. It will expand federal income tax for those earning $ 400,000 or more, and in addition to expanding inheritance tax, it will increase capital gains and wage taxes. If you are in the process of planning your wealth or transferring wealth, chances are Biden’s guidelines could affect your strategies.

What you should know about Biden’s tax plan

Biden’s tax plan will be incorporated into his stimulus plan, which is projected to increase revenue by $ 3.3 trillion over the next 10 years, ignoring macroeconomic feedback. Among the notable tax changes Biden will introduce, the individual income tax rate for those earning more than $ 400,000 will increase from its current 37% to 39.6%. Biden’s plan also has a number of consequences for estate planning. In particular, the inheritance tax exemption is expected to be cut in half and the “top-up base” rule to be lifted. These measures could have a significant impact on the transfer of wealth between generations.

Top estate planning moves to make now

What should you do now to respond to Biden’s tax plan? Here are five estate planning measures.

1. Take advantage of the inheritance tax exemption

In addition to lowering the inheritance tax exemption, Biden is expected to increase the maximum rate of inheritance tax. His plan is to bring the inheritance tax exemption down to $ 3.5 million, where it was in 2009. He will also raise the maximum inheritance tax rate to 45 percent.

To take action steps: If you already have strategic estate planning strategies in place to avoid much of the estate tax, it may not have a material impact on your finances. However, if you have not yet started planning your estate, now is the time to create a framework in which you can decide whether to take advantage of the increased estate tax exemption while it is in effect. The current inheritance tax expires in 2025, although Biden could tackle tax reform earlier. Could you use tax software to improve your strategy? While some people take a do-it-yourself approach to their estate planning, chances are they have complex questions that might make hiring a tax professional worthwhile.

2. Maximize Low Interest

With federal interest rates nearing historic lows, now is the time to embrace wealth transfer strategies where the interest rate plays an important role in determining the value of a gift. This can be anything from a Grantor Retained Annuity Trust (GRAT) to a nonprofit lead trust to credit-based techniques like intra-family loans or self-canceling installment slips. These strategies usually work better when the rates are low. So if you’ve been considering them for a long time, now is the time to act.

To take action steps: Work with your advisor to find out how best to take advantage of current interest rates based on your family’s circumstances and what you want to do with your money. If you are exposed to estate tax risk, finding ways to minimize that risk in the current interest rate environment can help reduce the impact of the changes proposed by Biden. Note that a trust is not set up immediately and it may take a long time for an attorney to prepare the appropriate documentation. Many estate planning attorneys have a high volume of work due to the current marketplace. Hence, it is best to start planning early. You can always wait until you have submitted the documents until you are completely comfortable. However, once you have them prepared and you know the trust relationships you want to build, you can quickly take action when market conditions change.

3. Communicate with the heirs

In the rush to prepare your estate plan before Biden delivers on some of his election promises, don’t take the time to openly discuss your intentions with your heirs and beneficiaries. While it may seem awkward or unnecessary when you make so many complex financial decisions, this is a best practice for estate planning. The clarity this creates can help avoid inheritance disputes in the future.

To take action steps: Schedule time with your heirs to hold a formal meeting to review your estate plan and the upcoming financial actions you plan to take to affect your heirs. Include any lawyer or estate planners in the discussion so they can thoroughly explain your decisions and the market factors that affect them.

4. Adjust changes to the base elevation

The topping up of the base currently offers significant tax benefits to many who inherit assets after the death of a loved one. When assets such as property or stocks are inherited, they are typically subject to capital gains tax, as has been widely appreciated since purchase. Increasing the base shifts the starting point for measuring capital gains to current market rates and effectively resets them. Biden’s tax plan is to eliminate the base increase. If he carries out this plan, the heirs will receive the transfer base.

To take action steps: Biden has not yet given details on how he would get rid of the top-up or when. If you want to wait and see this policy point, it is still wise to develop a plan now so that you can take immediate action in case the change in the base rule increase affects your finances. That means making preparations by speaking to your estate planning team, creating a strategy for the asset transfer, and even preparing the appropriate documents.

5. Find a counselor you trust

The tax changes proposed by Biden can have complicated implications that are difficult to decipher on their own. If you don’t already have a financial advisor, professional tax advisor, or wealth management team, employing one can save you money and headaches while planning your estate. As well as helping you find strategies you may have missed, these professionals can help you review them, avoid mistakes, and develop a strong communication plan for handing your wealth management strategy down to your heirs.

To take action steps: Interview money managers by comparing their rates and experiences with your specific circumstances. Be sure to ask how you are being billed, whether the cost of consultations is involved, and whether your estate planner has someone on hand to do the legal filing, or whether the legal fees are separate.

Last word

While Biden’s proposed tax reforms could have a significant impact on estate planning, it is not entirely certain when he will put his changes into effect or how comprehensive they will ultimately be. If you’d rather wait and see what will happen, it is still wise to create a plan with the necessary documentation so that you can make changes quickly if necessary. Remember that estate planning involves making many complex decisions that can often take time to process, especially if you involve your heirs in the conversation. If you have not already done so, start now and create a plan that will allow you to maximize your wealth in any tax environment.


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