If you frequent news networks or social media, you’ve probably seen lengthy discussions about the Build Back Better Act. The Build Back Better Act is a plan that President Joe Biden proposed to address ways to help American families through COVID-19 relief, healthcare, clean energy, infrastructure, housing, and, notably, taxation.
As of October 2021, Congress and the President have only signed one part of this $7-trillion package into law— the American Rescue Plan (Public Law 117-2), signed on March 11, 2021.
However, many Americans have been wondering how certain aspects of the Build Back Better Act might affect their estate planning and what changes they should make to their plans before the rest of its passing.
Here, we will break down the primary goals of the Build Back Better Act as they might affect your estate planning. Contact an estate planning attorney at Geisler Patterson Law in Orange County, CA, today to get a head start on adjusting your estate plan.
What Is the Build Back Better Act?
The Build Back Better Act is a wide-reaching legislation package that President Biden advocated shortly before his inauguration in January of 2021. This act proposes numerous changes to industries ranging from education to financial services over a ten-year roll-out period.
A few long-term changes the Build Back Better Act would create include:
- Two free years of community college for all students
- Child Care assistance for children between 0 and 5
- Child tax credits through 2025
- Investments to fight climate change and promote clean energy usage
- Reduced prescription drug costs
- Comprehensive paid family and medical leave
- Medicare expansions to include hearing, vision, and dental coverage
It’s important to note that while this act proposes these changes, it will likely experience revisions before becoming law. Therefore, the above actions could or could not come to fruition if and when the portions of the act pass in Congress.
How Would the Build Back Better Act Impact Estate Planning?
The Build Back Better Act includes several promising changes to significant areas of concern in American education, agriculture, healthcare, childcare, and more. However, an essential aspect of this plan to consider is the source of funding for these changes.
Some Democrats have already proposed a tax plan to acquire the funding necessary to make the numerous changes in this bill. This tax plan would significantly alter many Americans’ tax rates on gifts, estates, income, and corporate earnings.
Here are a few notable changes to taxation the Build Back Better Act would create.
Reduce the Estate, Gift, and Generation-Skipping Tax Exemptions From $11.7 Million to $5 Million
The estate, gift, and generation-skipping tax exemptions require recipients of property transfers to only pay taxes on gift and estate amounts, combined, exceeding $11.7 million. However, the Build Back Better tax plan would reduce this exemption to $3.5 million for transfers at death and $1 million for lifetime gifts.
Under the proposed plan, gifts between $1 million and $3.5 million would be subject to the current 40 percent rate. However, the chart below shows that gifts and estates with higher values would face higher percentages.
|Value of Estates and Gifts||Proposed Taxation Rate|
|Between $3.5 million and $10 million||45%|
|Between $10 million and $50 million||50%|
|Between $50 million and $1 billion||55%|
|Over $1 billion||65%|
Increase the Income Tax Rate for Americans Making More Than $400,000 From 37% To 39.6%
Currently, the top income tax rate for Americans earning more than $400,000 annually is 37%. However, the Build Back Better Act would increase this rate by a few percentage points to 39.6%. This means that Americans who make $400,000 would need to pay an additional $10,400 in taxes each year.
Increase the Top Capital Gains Rate From 20% To 25%
The capital gains tax rate is the tax rate Americans must pay on the sale of an asset that has appreciated over the time they have owned it. Currently, the top capital gains rate is 20%. However, the Build Back Better Act proposes raising the long-term capital gains tax rate to 25% plus applying a new 3% surcharge on all income above $5 million of modified adjusted gross income.
Geisler Patterson Law Estate Planning Attorneys Can Help
The Build Back Better Act could require you and your heirs to pay significantly more in taxes due to lower exemptions and increased tax rates. One way to combat these changes is to consider making gifts before the end of the year, as many of these proposed changes could potentially take effect on January 1, 2022.
Our qualified estate planning attorneys can help you determine the best adjustments to your estate plan to minimize the impact of increased tax rates and lowered exemptions. Let us help you determine a strategic approach and initiate any necessary changes before the act takes effect.
At Geisler Patterson Law, our elder law attorneys are in the business of protecting your family like a mama bear protects her cubs. Contact our estate planning attorneys today at 866-452-9657 to schedule an appointment in Orange County, CA.
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