The plan to pay for President Biden’s proposed Build Back Better Act has been released by the House Ways and Means Committee. Elements of the plan, which still needs to make its way to legislation, are likely to impact gift and estate tax planning.
In short, the plan proposes to reduce the current federal gift and estate tax exemption from the $10 million (indexed for inflation to $11.7 million for 2021) to $5 million (indexed for inflation to approximately $6 million) with effect from January 1, 2022. This is far sooner than the expected reduction, which was to take effect on January 1, 2026.
If this proposal is adopted into legislation, the federal gift and estate tax exemption would be reduced to just over $6 million (indexed) from January 1, 2022. This being so, you may want to think about using any remaining gift tax exemption before December 31, 2021. You can do this by making lifetime gifts or transferring assets to irrevocable trusts. Any transfers to irrevocable trusts using the current federal gift tax exemption ($11.7 million per person or $23.4 million per married couple) would need to be completed before that date – when the new legislation is expected to come into effect.
All of these changes are of course subject to change and invariably there will be some degree of change between now and when the legislation is drafted. As such, it’s important to check with your tax advisors before making any decision to act on information in the plan.
We’ll update this article once the legislation has been published.