The past several months have created a constantly shifting landscape that everyone in the estate planning world is attempting to navigate. This uncertainty is largely shaped by the potential relationship between estate planning law and the “Build Back Better” infrastructure plan backed by the Biden administration. The estimated $3.5 trillion dollar price tag of the infrastructure plan, which is in constant flux, requires considerable sources of funding, among which are several proposed changes to estate planning law.
Now, the plan itself is still dynamic and is weaving its way through numerous public and behind-closed-door conversations and the political machinations required of legislation this extensive. We don’t (and won’t) know what the final bill will look like until closer to the end of the year if Congress follows its historical pattern of waiting to pass legislation until mid-December. Given that, it’s critical to be prepared for numerous contingencies to react quickly once a final bill is passed.
Here are some possible implications the infrastructure plan could have on estate planning law based on various proposals that have been floated to date:
- Realization of capital gains. There has been conversation about the realization of capital gains being shifted from the point at which an asset is sold to the date of death and inheritance. This could have big implications on families who may not be liquid enough to immediately pay the capital gains tax upon inheriting larger assets.
- Lowering of the estate tax exemption. Reducing the estate tax exemption levels to pre-Trump era levels is another source generating interest.
- Elimination of the step up in basis. When a loved one passes, the fair market value of their assets gets “stepped up” to the fair market value of those assets on the date of his/her death. When an asset’s value is made equal to the current market value, it eliminates capital gains and capital gains tax. If the step up in basis is eliminated, when a family member inherits and then sells that asset, the family member pays capital gains tax based on the original purchase price. Note that this last item was proposed by the U.S. Treasury Department, but has not been presented in any proposed bill to date.
What the final legislation will end up including is anyone’s guess, but we can be fairly certain that it will have some impact on estate planning.
Once the bill is passed, perhaps in mid-December based on history or perhaps sooner based on political chatter, the clock starts ticking in order to complete any estate plan changes before a new tax year starts on January 1. It is never too soon to consider your response to these potential changes under various scenarios.
For more information and assistance with your estate planning needs, contact: Daniel Huntley at 815-987-8980 or dhuntley@wilmac.com. Adam Fleming at 815-987-8934 or afleming@wilmac.com.
