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Preparing for the Impact of President Biden’s Tax Plan on Estate Planning

Bryan Strike, MS, MTx, CFA, CFP®, CPA, PFS, CIPM, RICP®

Director, Financial Planning Research & Education


Legislation moving through Congress this fall would sharply reduce the current estate-tax exemption amounts and create several other changes. Here’s why—and how—you should act quickly to stay prepared.

Estate Tax Proposals and Planning - What To Do Right Now

Estate taxes have usually affected only the very wealthy at death. While the limits on the monetary value that a decedent can exempt from estate taxes routinely changes over time, we have seen wild swings in that amount over the last 20 years. Currently, the exemption stands at $11.7 million per person and $23.4 million for a married couple.  However, those amounts are poised to change yet again under legislation currently moving through Congress.


Current proposals

President Biden campaigned on a reduction in the exemption amount to $3.5 million person, an increase in the tax rate to 45%, and an elimination in the “stepped-up basis” rules. On September 13, the House Democrats introduced their proposals related to funding the $3.5 trillion budget bill, and key details differed from the Biden plan in every respect.

The current proposals include reducing the exemption amount to an inflation-adjusted $5 million (roughly $6 million starting in 2022), no adjustment in the tax rate, and no mention of the stepped-up basis rules. Democratic lawmakers did, however, target commonly used grantor trusts and family limited partnerships.


Gift now

In light of these proposals, the most important thing to do is revisit your estate plans now. Even if the potential changes don’t appear to affect you, we recommend reviewing your documents, goals, and intentions so you can stay prepared.

For example, consider making gifts as soon as possible, either outright or in a trust. This can be beneficial for two reasons:

  1. While the exemption is currently $11.7 million per person, there is no claw-back provision if the exemption is lowered. Giving $11.7 million this year will allow $5.7 million to escape transfer taxes in the future. You can decide this any time before the end of 2021.
  2. The grantor trust rules allow grandfathering of all trusts in place prior to the date of enactment. This is a common estate-planning strategy used to gift assets to loved ones in a controlled and tax efficient way. However, now is the time to act; you probably cannot afford to wait until the end of the year.


Revisit estate plans before end of year

If you have a sizeable estate, we can’t stress enough the need to start preparing for these changes right away. Not only would a trust need to be created as soon as possible, but it also must be funded. The proposals in Congress would cause any new assets added to an existing trust to be taxed as a capital transaction and be included in the grantor’s estate at death.

If you have considered adding assets to an existing trust, make those transfers as quickly as possible to avoid being ensnared by the proposed estate tax changes. It appears that none of the tax proposals would be retroactive and that most would start January 1, 2022. However, several important provisions would go into effect as of the date of enactment—most likely within the next month or two.

Mercer Advisors provides the estate planning tools to help you guide your loved ones, safeguard your legacy, and allow your wealth to have a direct and lasting impact. Speak with an advisor to get started.

Mercer Advisors Inc. is the parent company of Mercer Global Advisors Inc. and is not involved with investment services. Mercer Global Advisors Inc. (“Mercer Advisors”) is registered as an investment advisor with the SEC. The firm only transacts business in states where it is properly registered or is excluded or exempted from registration requirements.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors. Mercer Advisors is not a law firm and does not provide legal advice to clients. All estate planning document preparation and other legal advice are provided through Advanced Services Law Group, Inc.

This document may contain forward-looking statements including statements regarding our intent, belief or current expectations with respect to market conditions. Readers are cautioned not to place undue reliance on these forward-looking statements. While due care has been used in the preparation of forecast information, actual results may vary in a materially positive or negative manner. Forecasts and hypothetical examples are subject to uncertainty and contingencies outside Mercer Advisors’ control.