How wealthy families will save on property taxes under Biden’s presidency

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Democratic Senate candidates Jon Ossoff (left), Raphael Warnock (center) and US President-elect Joe Biden (right) collide their elbows on stage during a rally outside Center Parc Stadium in Atlanta, in Georgia, January 4, 2021.

Jim Watson | AFP | Getty Images

Wealthy Americans worried about the prospect of higher inheritance and gift taxes may have more time to strategize.

With Jon Ossoff and Raphael Warnock both winning the second round of Georgia’s senatorial elections, Democrats now have – albeit precariously – control of the Senate.

This will help President-elect Joe Biden move his legislative agenda forward, and raising taxes should be a big part of his plans.

The inheritance tax could be a prime target for Democrats.

Biden has repeatedly suggested that wealthy Americans are not paying their “fair share” of taxes. He said he plans to reduce the tax exemption for inheritances and gifts and increase the rates at which they are taxed to “historical standards.”

This could mean reducing the amount an individual can transfer without estate tax to $ 3.5 million, lowering the lifetime exemption for gifts to $ 1 million, and raising the tax rate on transfers over these amounts to 45%.

Currently, individuals benefit from a unified exemption of $ 11.7 million for estates and gifts. Transfers exceeding this amount are subject to a maximum tax rate of 40%.

These generous terms are expected to expire at the end of 2025.

“The higher exemption and lower tax rates won’t last forever,” said Dustin Stamper, general manager of the Grant Thornton national tax office.

Tax revisions take precedence over pandemic relief

Wealthy families may still have time to review their estate plans – and do so in today’s friendly terms.

Despite Democrat control over the White House and both houses of Congress, Stamper believes the window for estate planning remains open for wealthy Americans.

“I think the exemption and the rates will eventually be on the table, but I don’t think it’s likely this year,” he said.

“This administration will focus on the pandemic and on economic relief and will not be eager to take money out of the economy,” Stamper said.

The new administration can also choose to Avoid the politically charged inheritance tax debate this year, given the relatively low income it generates, said Alvina Lo, chief wealth strategist for Wilmington Trust.

Households will file about 4,100 federal tax returns for people who died in 2020 – only about 1,900 of these will be taxable, according to estimates from the Tax Policy Center.

Good business owners are usually control freaks. It is very difficult for them to cede control of their business to a trust.

Alvina lo

Chief Wealth Strategist for Wilmington Trust

These returns could generate approximately $ 16 billion in estate taxes payable for 2020, the center estimated.

“Inheritance tax is not a big source of income,” Lo told Wilmington Trust. “It’s a drop in the bucket in terms of paying for things like the stimulus package.”

“Even with a Democratic President, House and Senate, inheritance tax may not be at the top of their agenda,” she said.

In other words, the window for using the huge exemption to avoid inheritance taxes may remain open for another year.

“We have two types of clients,” Lo said. “Some were enthusiastic and put strategies in place before the end of the year, while others were on the close and may now take action in the first quarter.”

Prime time for asset transfers

Klaus Vedfelt | Digital vision | Getty Images

It is not just the outlook for tax policy that drives estate planning.

“With interest rates at historically low levels and many depressed asset values, there are opportunities to pass those assets to others at low cost,” said Stamper of Grant Thornton.

Two of the most popular vehicles for achieving this are grantor-kept annuity trusts and charitable annuity trusts.

Both types of trusts transfer assets with high potential for appreciation – typically business assets or securities – into an irrevocable trust.

The annuity trust maintained by the settlor makes payments to the settlor for a fixed term. Once the term has expired, the property reverts to the heirs.

This administration will focus on the pandemic and economic relief and will not be eager to take money out of the economy.

Stamper dustin

General Manager of the National Tax Office from Grant Thornton

During this time, the main charitable annuity trust pays an income stream to a charity for a set period of time before the remaining assets are transferred to a beneficiary.

“The goal is to freeze the value of the estate’s assets for tax purposes,” Stamper said. “The potential future appreciation of these assets can then be passed on to the beneficiaries tax-free.”

Wealthy families who evaluate these strategies must consider a trade-off: while saving on taxes, they are also giving up control over assets.

“Good business owners are usually control freaks,” Lo said. “It is very difficult for them to cede control of their businesses to a trust.”

As powerful as these estate planning strategies can be in terms of tax savings, they aren’t for everyone.

These tactics may make the most sense for people with estates exceeding $ 25 million, Stamper said.

Even if the exemption is cut in half during President-elect Biden’s tenure, a married couple will still be able to pass nearly $ 12 million to their heirs tax-free.

“If you’re not going to be taxed, some of these transfers can hurt you,” Stamper said.


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