With Joe Biden now the president-elect, some people are concerned with his tax plan. Especially those earning over $400,000 per year. The former vice president talked during the campaign about a higher estate tax and proposed changing the taxation of capital assets upon death.
The president-elect will be sworn in on January 20, 2021, which means some wealthy households are looking to change their estate planning. Acting ahead of time is what could help wealthy families since the projected tax could increase up to 40% rate. There are certain things to know ahead of time so planning can be done before Biden puts his plan into action.
Capital Gains Tax
Some people are wondering about the upcoming tax hike proposed by Biden and if they should liquidate their portfolios in preparation for an increase in capital gains. You should focus on assets that are projected to be sold in the next year or two. Preparations should be made to liquidate now so as to not have to sell at a higher tax rate. You shouldn’t permanently reduce your capital right now.
Potential Acceleration of the Expiration Date for Gift and Estate Tax Exemptions
The gift and estate tax exemption is set to sunset in 2025, with the exemption set to return to $5 million as opposed to the current $11.58 million per person and $23.16 million per family. Some have surmised, however; that this exemption may speed up with Biden coming into power. If the Senate becomes predominantly Democrat, this is a big fear for wealthier households.
With wealthy households needing to prepare for gift and estate tax exemptions, as well as how capital gains will be affected, there are certain ways individuals and families are advised to prepare.
- It’s advised to look to your attorney and financial advisor to find out what the next steps that you need to take are. It’s especially advised to make an appointment soon, so as to have time to prepare before Biden is inaugurated.
- Prepare a balance sheet with your financial advisor to draft all of your assets and liabilities. Then project what you will need in order to maintain the lifestyle you have currently.
- Project how much money you will be bringing in and set money aside to have to continue your lifestyle.
- Be flexible: while you can try to project your funds for the future, nothing is set in stone. Build trusts with the flexibility to better handle any issues that may arise.
Better to Be Prepared
No one wants to think about a tax hike. Your life’s work has given you the ability to afford a certain lifestyle that you and your family have become comfortable with. The idea of not being able to maintain that comfort isn’t reassuring, which is why planning ahead of time is suggested. With any new president, adjustments must be made and Biden’s presidency will be no different. With the proper financial advice and top-notch attorneys, your assets can be better protected no matter the tax hike.