A Biden presidency could complicate your property taxes and planning. Start preparing now.


Financial advisers suggest considering how the outlook for a Biden administration would affect estate planning. Here, the first voters in Philadelphia on a recent day.


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Note to readers: The Associated Press has called the presidential election for former Vice President Joe Biden. This article has been updated.

Concerned about Democratic presidential candidate Joe Biden’s desire to increase inheritance and capital gains taxes and change the taxation of capital assets on death, some wealthy individuals have taken steps to reconsider their estate planning strategies .

It will probably be time to make some changes before a Biden inauguration, but it is advisable to strategize now and execute later, if you need to, so you don’t rush at the last minute. “Clients need to be aware of what might happen later – before it happens – and what their options are,” says Gerard Joyce, Managing Director and National Head of Trusts and Estates at Fiduciary Trust International.

In large part, your course of action will depend on many factors such as your income, how much money you need to live, your asset mix, your donation goals and your comfort level, according to financial advisors and estate planning lawyers.

Tax considerations on donations and inheritances: For 2020, the amount of the gift and inheritance tax exemption is $ 11.58 million per person and $ 23.16 million per married couple. The 2017 Tax Cuts and Jobs Act doubled the exemption from previous levels. The enhanced exemption is expected to automatically expire at the end of 2025 and revert to $ 5 million, adjusted for inflation.

With a Biden victory, however, there are fears that the sunset clause could be speeded up or the exemption reduced further, especially if the Senate falls under Democratic control. There are also concerns about the effects of Biden’s proposal to increase the capital gains tax rate for people earning more than $ 1 million to 39.6% and eliminate the “hike” provision. de base ”in the tax code, which currently allows heirs to avoid taxes on earnings accrued before death.

Jonathan Forster, partner at law firm Weinstock Manion, says many of his clients, most of whom have between $ 50 million and $ 100 million in net worth, are making large donations this year, in some cases up to the limit. for life, because they’re worried about losing the high exemption amount if Biden wins.

But other customers, he says, are holding on. Most recently, he spoke to a 73-year-old client valued at $ 17 million who was planning to donate $ 11 million this year to get ahead of any potential changes in the tax exemption. inheritances and donations. He asked her how comfortable she would be if her net worth dropped by $ 11 million, and it turned out that she was not at all comfortable.

“Everyone has their own level of relative comfort compared to their net worth,” says Forster. He tells clients not to do anything just for tax reasons and to make sure they can truly afford to donate without impacting their lives. Even though that means the kids may have to pay a bit more in taxes later, it’s not worth making a special move just to save on taxes if everything else doesn’t line up, says. he.

Capital gains tax considerations: Beyond the tax exemption on donations and inheritances, some wealthy individuals are worried about a possible increase in the rate of capital gains.

Brook Lester, principal and chief wealth strategist at Diversified Trust, says he recently answered a question from a client about whether or not to liquidate his entire portfolio now in order to lock in a rate capital gains of 23.8%. Response from Lester: Focus only on assets that you would otherwise have sold over the next two years in order to rebalance your portfolio or fund your cash flow needs. And start preparing now to get that cash so you don’t find yourself in a position where you are forced to sell at a higher tax rate.

It provides a simplified example of why liquidation is not the right decision for most customers. Suppose you have marketable securities that you paid $ 10 million for and are now worth $ 20 million. If you sold everything today, you would have a capital gain of $ 10 million and pay $ 2.38 million in federal income tax alone. Now your portfolio is $ 17.62 million instead of a $ 20 million portfolio. Meanwhile, to get back to that $ 20 million, you will need to increase your risk in order to significantly increase your portfolio. “You’re permanently reducing your capital because you’re afraid of the tax rate and it’s just not the right balance for most clients,” he says.

“You make a permanent decision based on the tax rate at any given time and taxes change all the time,” he says. If you plan to sell an asset anyway in a year or two, it might be a good idea to consider doing so sooner, but don’t do it just for tax law purposes, he advises.

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