Updated: Nov 26, 2020
Now that Joe Biden is projected to become the 46th President of these United States, should you rush to adjust your estate plans before December 31? How concerned should you be about a sweeping set of tax reforms?
First, the federal estate tax certainly doesn’t affect you or your family unless you have a net worth exceeding $22.4 million. The 2017 Tax Cuts and Jobs Act (TCJA) under the Trump Administration raised the exemption limit to $11.2 million for individual estates ($22.4 million for married couples). Before 2018, the exemption limit was a mere $5.5 million and less than 1% of Americans paid any federal estate tax.
When the average (mean) household is $738,821 and 90% of American households own less than $1.2 million, then federal estate taxes are the least of your concerns. Even if Biden stretched back to 2009 tax rates, that’s still an exemption limit of $3.5 million!
Second, overhauling the tax code is a Promethean endeavor at the glacial pace of a divided Congress. The TCJA wasn’t introduced until nearly 10 months after Trump’s inauguration and only took effect as of January 1, 2018. The legislation’s rapid passage was credited to Republicans controlling both the House and Senate, which is an advantage that the Biden administration will not benefit from (even if it’s a 50-50 split in the chamber).
From a historical perspective, there was no significant tax reform during the 8 years of the Obama administration. Obama’s principal accomplishment on tax matters was the 2010 extension of the Bush administration's tax cuts, which were enacted in 2001 and 2003. The penultimate major tax reform, which predated the Clinton administration and H. W. Bush administration, occurred 34 years ago under the Reagan administration in 1986.
Should you rush to adjust your estate plans before December 31? Only if you regularly review and adjust your estate planning documents at the end of each year.
Written by Jack Fan. If you have questions or remarks, please email me at firstname.lastname@example.org.