2 New Tax Modifications That Will Have an effect on Your Property Plan – New York Property Planning Lawyer Weblog – March 3, 2021

With the introduction of the Biden administration in the country, various changes are likely to occur, including some related to estate planning. One change concerns a reduction in the inheritance tax exemption, while a second revision of the Estate Planning Act eliminates the base increase for inherited property.

While these changes are likely to occur, it is difficult to predict what impact this change will have and when these changes will take effect. To better prepare people interested in creating successful estate plans, this article discusses some key details to help understand these upcoming changes.

Preparing for the Elimination of Basic Step-Up

Remove Basis “Step Up” At the time of a person’s death, this is likely to have a significant impact on taxes. Assets were long valued by the time a person died, even if their value had increased. By “increasing” the base value of an asset, the parties have often been able to avoid levying capital gains taxes on property.

However, the Biden administration plans to remove the basic step-up rule, which means that profits are recognized at the time an asset is transferred. If a profit is recognized it can have significant tax consequences for those who inherit assets with high appreciation values.

To address the financial challenges of increased top-ups, individuals involved in the estate planning process should now consider investing assets in a trust. By placing an asset with a higher capital gain in a trust and gifting other assets directly, individuals involved in estate planning may find that they can significantly reduce the capital gains that the beneficiaries would have to pay.

To avoid these undesirable tax situations, if you are ready to gift assets to loved ones now, consider several strategies to make the most of the higher estate and gift tax exemptions before they are lowered.

The reduction of inheritance tax exemptions

Under the Tax Reduction and Jobs Act 2017The tax exemption for estate, gift, and generation transfer taxes is $ 10 million. Transfers of assets above these exemption levels are subject to a tax rate of 40%.

However, this exemption is expected to be reduced to $ 6 million in early 2026. Due to the change in political administration and the changes in the House of Representatives and the Senate, this exemption could be reduced much sooner. While the exemption amounts will be lowered to at least $ 6 million, some experts believe that this amount could be lowered to $ 3 million.

In order to avoid undesirable tax consequences later, it should be considered whether transfers should be made now in order to make optimal use of the tax thresholds. Other beneficial gift techniques could include gifting of current corporate interests or the creation of irrevocable life insurance trusts or marital trusts with restricted access.

Talk to a knowledgeable estate planning attorney

The realm of estate planning is fraught with complications, including tax. One of the best ways to resolve these issues is to seek advice from an experienced estate planning attorney. Contact Law firm Ettinger today to schedule a free case assessment.