Congress and the President have tax proposals on the table that could dramatically affect the pocketbooks of some of our clients. If you have a net worth of more than $5 million or are earning more than $400,000 per year, you should download the informative information we have available for you.
During his campaign for President, Joe Biden promised to increase the amount of estate taxes that are currently paid and to eliminate the “step-up in basis,” a tax benefit that allows taxpayers to pass on appreciated assets (such as real estate and stocks) at death to children and other beneficiaries without the children and other beneficiaries being subject to capital gain taxes on the gains on those investments during the taxpayer’s lifetime.
On March 25, 2021, Senator Bernie Sanders and Senators Kirsten Gillibrand, Sheldon Whitehouse, Chris Van Hollen, and Jack Reed introduced the For the 99.5% Act. The 99.5% Act is intended to increase taxes on the wealthiest 0.5% of Americans.
According to the bill’s authors, 99.5% of Americans would not owe a penny more in taxes under this bill. Still, the families of all 657 billionaires in America – who have a combined net worth of over $4.2 trillion – would owe up to $2.7 trillion in estate tax. The Senators and the Press fail to tell you that you don’t have to be a billionaire to be in the top 0.5% of the wealthiest individuals in the United States. Many of our neighbors are “millionaires next door”.
How Does It Work?
The basic feature of the bill is that it would cut the federal gift and estate tax exemption amount (the amount that can be passed free of estate tax) from the current $11.7 million to $3.5 million. For married couples, the amount would be lowered from $23.4 million to $7 million. The good news is that under this bill the reduction in the tax exemption amount would not occur until January 1st of next year. This gives those who want to plan a window of opportunity to lock in the higher exemption amount. Many of our clients at the Sandoval Legacy Group have already done so or are in the process of doing so.
The gift tax exemption (the amount that can be passed free of gift tax while you are alive) will be lowered from the current $11.7 million / $23.4 million amount to $1 million / $2 million. This is the same gift tax exemption limit that we had imposed on us from 2001 to 2010, the last time that Congress made major changes to the estate and gift tax laws. Gifts made in 2021 will be subject to the current law – creating lots of planning opportunities for those who chose to take advantage of the many estate and gift tax planning strategies that are available currently.
The amount of the estate and gift tax rate will also be increasing. It is currently a flat 40% of the amount of the estate in excess of the exemption amount. This means that beneficiaries of estates under $11.7 million pay no estate tax. The beneficiaries are taxed on the portion of the estate over $11.7 million at a flat 40% rate. The amount is doubled for married couples to $23.4 million. The 99.5% Act proposes to increase the estate tax rate to 45% once a deceased person’s taxable estate exceeds $3.5 million. The rate would be 50% and higher when the taxable estate exceeds $10 million with the maximum rate of 65% being imposed on the portion of any estate over $1 billion. The proposed increase in rates is also effective January 1, 2022.
Download our Free eBook “Playing Robinhood: Will Congress Raise Estate and Gift Tax on the Rich in 2021?.”
Contact Southern California’s Premier Estate Planning Law Firm
If you have additional questions or concerns regarding your estate plan or, specifically, the 2021 potential tax law changes in California, contact the experienced and trusted estate planning lawyers at Sandoval Legacy Group, A division of Holstrom Block & Parke, APLC by calling (951) 787–7711 to schedule an appointment. No other law firm in Southern California has the knowledge and experience relating to estate planning, special needs planning, probate, conservatorships, business succession planning, tax planning, and trust administration as our lawyers and paralegal staff.