Estate Planning: How you can prepare for success

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The current administration has not let go of plans for estate tax law changes. While the 2021 proposed tax bill, the American Families Plan, did not make its way into actual law, the Biden administration’s latest budget plan includes tax hikes for wealthier Americans.

The current budget proposal includes a tax on unrealized capital gains above $1 million. This is a significant change from current capital gains laws only taxing gains once realized and capping them at a 20% tax rate even for higher income earners.

The budget proposal also seeks to see the capital gains raised to ordinary income tax rates for wealthier individuals as opposed to the capped rates that exist now.

It is highly recommended that professionals lay out an outline of all the assets in an estate plan in order to clearly see the pieces that may need to be addressed and how to address them in the most strategic manner.

In addition to significant changes proposed to the capital gains tax, changes are proposed for large estates as well. Estates above $11.7 million per person would be subject to a 40% tax rate. In essence, large estates would be subject to significant capital gains tax at the time of death followed by the estate taxes on assets above the limit.

Effectively, the combined proposal results in up to a 61% tax rate on significantly high value assets and estates.

Wealthy Americans may be scrambling to rearrange estate plans in the wake of these proposed changes, especially in the case of unrealized gain taxes. Tax practitioners should start reviewing large estates and significantly appreciated portfolios now.

While the changes have yet to pass, creating a plan to address them if necessary will be critical to address large tax bills. Estate planning often requires a lot of moving parts as well as attorneys and other stakeholders.

It is highly recommended that professionals lay out an outline of all the assets in an estate plan in order to clearly see the pieces that may need to be addressed and how to address them in the most strategic manner.

Estate planners need to keep their finger on the pulse of coming changes and be prepared for a big job ahead.

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