As former Vice President Joe Biden looks likely to win the 2020 presidential election, it is important to consider how the democratic nominee tax policies will affect estate planning. Biden has already stated that if elected, he will lower the gift and estate tax exemption, increase capital gains taxes, and remove the step-up in basis provision. Thus, to decide if you need to update your estate plan or gift a sustainable amount of your assets, you should consult your estate planning attorney.
Assemble Your Crew
The first step of deciding what to do with your estate plan if Joe Biden gets control of the White House is to speak to the professionals who helped you create this plan originally. On the other side, if you have not yet created an estate plan, it is crucial that you talk to an estate planning attorney immediately. These professionals will help you work to create, update, or ensure that your estate plan is safe even if Biden’s proposed estate planning changes come to fruition.
However, it is important that you contact these professionals soon as many estate planning attorneys will experience increased client volumes over the coming months.
Draft Your Balance Sheet
After consulting an estate planning professional, you will want to create a balance sheet detailing each of your assets and liabilities. After creating a balance sheet, you should collaborate with the attorney or other tax professional to project how much money you will need per year to maintain your current standard of living.
For example, if you are worth $10 million and determine that you will need $6 million to live on for the rest of your life, it may make sense to gift away the additional $4 million to your family and friends before the tax rate increases.
If your assets include a small business that you would like to transfer or sell, you should immediately speak to an appraiser. This appraiser should work to help you understand your companies’ value. This is especially important if you plan on transferring the company to a family member or friend. If you submit an inaccurate business valuation to the IRS, they may not accept your claim. This could affect your plans and make it so that you cannot complete the transfer until Biden’s increased tax plan passes.
Plot Out Cash Flow for The Rest of Your Life
Another important part of updating your estate plan is to project your future cash flow. This project includes income earned from businesses. However, it also includes the income you receive from pensions, Social Security, and other sources of retirement income. When creating these projections, you must ensure that your cash flow will meet all of your expenses and taxes. On top of the taxes, make sure you understand the financial workings of any trusts you are utilizing. The reason for this is that some trusts generate income. Further, this income is taxable to the creator of the trust during their lifetime.
By projecting your expected cash flow, you will be able to decide what additional assets you must keep. This ensures that you can cover any additional costs that your cash flow may not cover.
Be Intentional and Flexible
Finally, you and your estate planning professional should create a plan that allows you to meet your financial needs. However, you may not need to shift or gift most of your assets away just yet. Instead, you should place flexible provisions into the trust documents. This allows the creator of the trust can move assets around depending on what happens with the future tax laws. These flexible provisions could include the right to substitute trust assets. Thus, the creator of the account could shift investments that have a greater potential for appreciation. This is useful even if the tax codes do not change. The reason for this is that you can maneuver your assets no matter what financial situation you may be in.
Contact our Law Office for More Information
For more regarding ways to mitigate the effects of higher estate taxes under a Biden presidency, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding trust and estate law, check out our blog.