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POTENTIAL TAX REFORMS WHICH WILL CHANGE ESTATE PLANNING

Here are some of the Federal  proposed reforms by the Biden Administration to increase taxes which if passed could require a update in your estate plan.

 

  1. Raise the top individual tax rate 39.6 percent plus 3.8 for net investment income for a. total of 48.4 percent.
  2. Raise the top corporate tax rate to 28 percent.
  3. Tax Capital gains and dividend income as regular income (possibly limited to a certain amount)  Capital gains are defined as the gain between the purchase price plus improvements and the sale price.   These gains are now taxed at a lower rate for Federal Income Tax, but are taxed at the regular rates for State Income Taxes. 
  4. Eliminate the stepped-up basis for inherited assets for the purpose of capital gains tax
  5. Have smaller estates pay Federal Estate Tax.   Currently the estate tax exemption amount is $11.7 million adjusted for inflation until 2025.   This amount can potentially be doubled in a marriage situation because with proper planning each spouse can get the exemption if the size of the estate warrants it.   After 2025 the limit is scheduled to revert to the 2011 level of $5 million adjusted for inflation.
  6. Tax assets when put into a trust.  Many foreign countries do not recognize Revocable Trusts in the same way that the we do in the United States.  This reform would completely change US estate planning especially in California.  

    At this time none of these reforms have passed and indeed is uncertain  that they would pass Congress, but it is important to watch these developments in order to keep your estate plan up to date.  

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