New tax proposals and your estate plan

A number of tax proposals being considered in Congress could significantly affect gifting and estate plans for those with larger estates. If your gross estate is over $3.5 million, you should meet with your estate planner to take advantage of gifting opportunities that are available under the current law. Under Vermont senator Bernie Sanders’ For the 99.5 Percent Act, the estate tax exemption would be reduced from $11.7 million for individuals and $23.4 million for couples to $3.5 million for individuals and $7 million for couples. Any estate that is valued at under the exemption amount will not pay any federal estate taxes, while those exceeding the exemption threshold would be subject to a progressively increasing tax rate that starts at 45 percent. The Act would also slash the lifetime gift tax exemption from $11.7 million to $1 million, although individuals would still be able to give away $15,000 a year without the gift counting toward the lifetime limit.

Another proposal in the Senate is the Sensible Tax and Equity Promotion (STEP) Act, which would eliminate the stepup in basis that beneficiaries receive when they inherit property. The proposal would require an estate to pay tax on all previously untaxed gains. This means that if an estate includes property that has increased in value, the estate would have to pay taxes on that increase. However, the Act would allow the first $1 million of appreciated assets to pass without taxation. In addition, families that inherit a farm or business would be able to pay the tax in installments over a 15-year period. Any taxes paid under the bill would be deductible from the estate tax.

President Biden has also introduced his tax proposals, which include an increase of the capital gains tax rate to 40 percent. This would apply only to income over $1 million. Biden’s proposal also contains a similar elimination of the step up in basis as the STEP Act. In addition, the proposal targets dynasty trusts. The income that has appreciated in a dynasty trust may be subject to capital gains if it hasn’t been subject to recognition in the past 90 years. There would also be no valuation discounts when calculating capital gains.

It is unknown which if any of these proposals will make it all the way through Congress and get signed into law, but with Democrats in control of both houses of Congress and the presidency, some changes are likely. It is difficult to plan given such uncertainty, but the following are some options to talk to your attorney about before any of these proposals become law:

(1) Consider creating a trust and using the current exemptions to transfer assets into the trust before the end of the year.

(2) Consider including charities in your estate plan.

(3) Utilize disclaimers in any trust you may have that would change provisions if there are changes to the tax code.

(4) Consider giving away a fractional interest in property before the end of the year and any valuation discounts may be eliminated.

Before taking any steps, talk to your attorney about what you can do now to protect your estate from future tax changes.

The legal advice in this column is general in nature, consult your attorney for advice to fit your particular situation. in the Commonwealth of Pennsylvania and is certified as an Elder Law Attorney by the National [ZRUGHGLWRU#DRO FRP

Elder Law Foundation as authorized by the Pennsylvania Supreme Court. She is a principal of ‹

the law firm of O’Donnell, Weiss & Mattei, P.C., 41 High Street, Pottstown, and 347 Bridge Street,