Pub. 3 2021 Issue 2

M A R C H / A P R I L 2 0 2 1 16 nebraska cpas ADVISING PRESIDENT BIDEN ON ESTATE AND GIFT TAX PROPOSALS BY SHARON KREIDER, CPA C P A I N S I D E R Mywealthy (and very conservative) client called after the election results were apparent and asked, “What is Biden going to do to me?” He didn’t want a wait-and- see answer. And he didn’t want me to say, “Go see your estate attorney.” He wanted my opinion, perhaps to weigh against the attorney’s opinion. I know that you are facing the same problem with your clients. Here’s an opinion piece for you. Two Assumptions There are two basic assumptions applied in the following discussion on President Biden’s estate tax proposals. Our country has run up a big COVID-related deficit, and we will have to pay down the deficit someday. Our economy is fragile because of COVID-19. We need to consider the immediate impact on our economy of all proposed tax increases. Maybe short-term or mid-term impacts will result in a delay to what might otherwise be good tax policy. Current Law Assets are included in the estate at their fair market value. They are subject to 40% federal estate tax if the estate assets’ total value is greater than the exemption amount (currently $11.7million for each individual). Inherited assets receive a step-up in basis to fair market value at the date of death. The gift exemption is currently the same as the estate tax exemption, encouraging many wealthy people to maximize gifts in anticipation of President Biden’s success in reducing the exemption amount. Proposals President Biden has made four proposals to increase taxes on the transfer of wealth. 1. Reduce the estate tax exemption. 2. Reduce t he g i f t t ax exempt ion and decouple it from the estate tax exemption. 3. Increase the rate on taxable estates from 40% to 45%. 4. Eliminate step-up inbasis at inheritance. Reducing the Exemption President Biden has suggested that the estate tax exemption should be lowered to $3.5