The Kamala Harris campaign recently announced that it is endorsing several significant changes to the transfer tax system, which were initially proposed in the American Housing and Economic Mobility Act of 2024. These proposed changes could have a substantial impact on your estate plan. Included below are some of the highlights and how they might affect you and your loved ones:
Reduction of the Estate Tax Exemption
The federal estate tax exemption would be reduced from its current level ($13.61 million per individual in 2024) to $3.5 million per individual. If your estate exceeds $3.5 million, your assets could be subject to estate tax upon your death.
Increase in the Estate Tax Rate
The federal estate tax rate would increase (from th
e current rate of 40% on estates over $13.61 million) based on a graduated scale, starting at 45% for estates over $3.5 million and going up to 55% on estates valued up to $13 million, 60% on estates over $13 million but not exceeding $93 million, and 65% on amounts over $93 million. Such an increase could significantly reduce the amount of wealth passed on to your loved ones.
Elimination of the Step-Up in Basis
The step-up in basis at death would be eliminated, meaning inherited assets would retain the original purchase price as their basis for capital gains calculations (potentially with some exceptions, e.g., for surviving spouses). Without a step-up in basis, your heirs could face substantial capital gains taxes if they sell inherited assets.
Reduction of the Annual Gift Exclusion Amount
The annual gift exclusion amount would be reduced from the current $18,000 per recipient to $10,000 per recipient and the cumulative number of tax free annual gifts restricted to $20,000 per tax payer. With a lower annual gift exclusion, your ability to transfer wealth tax-free each year would be limited.
Expansion of the Generation-Skipping Transfer (GST) Tax
The GST tax would be structured for broader application, including a proposed lower exemption amount and higher tax rates. If your plan includes passing assets to your children, grandchildren, or future generations in trust, or outright to your grandchildren or future generations, this expansion could increase the tax burden on those transfers.
Limitation on Grantor Trusts
Grantor Trusts would be subjected to estate tax inclusion rules, thereby significantly reducing their efficacy as an estate planning tool. If you currently utilize a grantor trust(s) as a part of your estate plan, these changes could undermine their intended benefits, potentially increasing your estate’s tax liability.
What Should You Do Next?
These proposed changes could drastically alter the landscape of estate planning. While the legislation is not yet law, it is essential to be proactive.
We encourage you to get in touch with our office to schedule a Strategy Session to discuss planning for a reduction in the federal estate tax exemption, as well as approaches to utilize in response to the other above proposals, in the event they become law.
See details about what is included, the associated fees, and how to schedule a Strategy Session in our recent blog article, “Estate Tax Planning Playbook For Uncertain Times and Changing Tax Laws”
Proactive planning today can go a long way in helping to secure your family’s future tomorrow.
Simply call 610-933-8069 to schedule an in-person or Zoom session.
