Come January 20, Democrats will control both houses of Congress and the White House. This virtually ensures that taxes are going up. How significant is Biden’s proposed tax increase? $3 trillion, including a significant reduction in the estate tax exemption!
Understanding your planning options relating to your net worth is essential to preserving your assets for your heirs. Let Strategic Equity Group help you build a plan to keep what you have earned and saved.
The blue wave will directly impact individuals’ and families’ future tax burden. Taxpayers should consider using their 2021 $11.7 million gift and estate tax exemption before new tax legislation passes and takes effect. Time is of the essence, as there is no way to stop Congress from making the changes retroactive if that’s what they choose to do.
The gift and estate tax exemption is the amount of property or assets that each individual may transfer during their lifetime or at their death without incurring a 40% tax under current federal law. Genuine concern exists that the current window of opportunity to effectuate a wealth transfer may be closing sooner than previously thought given the recent outcome of the elections. Tax changes can now pass with a simple majority of senators, instead of the 60-vote majority typically needed for legislation.
It is not outside the realm of possibility that any future federal tax legislation passed in 2021 could be retroactive to January 1, 2021. Biden has called for “returning the estate tax to 2009 levels,” which implies the top rate would increase to 45%, and the gift and estate tax exemption would be reduced to $3.5 million per taxpayer. Biden also indicated that he would repeal the step-up in basis, which occurs when an appreciated asset passes to heirs. Currently, heirs only have to pay taxes on capital gains above the market value of their inheritance established at the date they inherited the asset. Biden’s plan would tax the unrealized gains at death, and then require estate taxes to be paid on values in excess of $3.5 million.
Given the likelihood of significant increases in the estate tax in the near future, now may be an optimal time to consider estate planning strategies. The transfer of ownership of businesses or real estate entities requires precise execution. Valuation support from a credible and independent valuation firm like Strategic Equity Group is a critical component of this strategy. Delivering competent, well supported valuation opinions, while minimizing IRS scrutiny is our top priority. We ensure that the valuation analysis is supportable, based on well-reasoned assumptions, and conforms to all existing revenue rulings and is consistent with relevant tax court cases.
Strategic Equity Group’s professionals have experience supporting appropriate discounts for lack of marketability, control, and built-in-gains in complex ownership and legal structures. Our valuation experts are independent, knowledgeable, and informed about the most recent applicable tax court cases, legislation, and related revenue rulings.
At Strategic Equity Group, we work with estate planning attorneys, business owners, taxpayers, and their advisors to value and document ownership transition. If you are interested in learning more about how an experienced valuation advisor can help you navigate these critical and complex issues, we would love to hear from you. Contact Chris Kramer at [email protected] | (714) 380-3300 or Michael Perez at [email protected] | (714) 380-3304.