As the 2024 election looms closer, the potential changes in tax policy are a key topic of debate. The tax plans proposed by President Joe Biden and former President Donald Trump have significant implications for estate planning. One major point of contention is the estate, gift, and generation-skipping transfer tax exemptions. Under Trump’s plan, these exemptions were raised to $13.61 million per individual by 2024, while Biden aims to reduce them to $5.49 million per individual, a return to pre-2017 levels. This change could affect the number of estates subject to federal estate taxes, particularly those with higher net worth.
Another important aspect of wealth transfer taxation is the applicable tax rates on estates exceeding the exemption threshold. Trump’s plan maintains the estate tax rate at 40%, while Biden wants to raise it to 45% for high-net-worth estates. Additionally, the treatment of post-mortem basis adjustment, or a step-up in basis, is a key consideration in estate planning. Trump’s plan would keep this adjustment intact, while Biden has proposed eliminating it for gains exceeding $1 million.
Capital gains taxes are also a significant factor in investment decisions and wealth accumulation. Under Trump’s plan, the capital gains tax rates remained relatively low at a maximum of 20%. However, Biden has proposed increasing capital gains taxes for high-income individuals, taxing them at ordinary income tax rates for taxpayers with income exceeding $1 million.
The disparities between the Biden and Trump tax plans highlight broader philosophical differences regarding taxation, wealth distribution, and economic policy. Republicans argue that lower taxes incentivize investment and economic growth, preserving wealth for future generations. Democrats, on the other hand, believe that higher taxes on the wealthy promote fairness, fund social programs, and address income inequality.
Ultimately, navigating these proposed changes requires careful consideration and proactive planning. Advanced estate planning strategies and seeking guidance from qualified tax professionals and financial advisors can help individuals and families adapt to evolving tax landscapes and optimize their financial strategies accordingly. As the debate over tax policy continues to be a central focus for voters and policymakers, understanding the implications of these proposed plans is crucial for those planning their financial futures.