On May 28, the Biden government released its budget proposal for fiscal year 2022, which includes two major legislative plans previously released by the government, the American Jobs Plan and the American Families Plan. At the same time, the Ministry of Finance published its eagerly awaited “Green Paper”, which explains the administration’s proposed revenue for the financial year. The Green Paper is not law, but it does raise questions about some of the subtleties that will affect estate planning.
Estate planners for the richest Americans are looking for ways to avoid the potential impact of higher taxes on investment income and new capital gains taxes on death. For households earning $ 1 million or more, capital gains from investment income would be taxed as ordinary income. And for estates greater than $ 1 million (i.e. a lifetime exclusion of $ 1 million), Biden seeks to change the tax treatment of assets that are carried over after the taxpayer’s death. In fact, the proposal aims to tax unrealized gains when an asset is passed on to an heir as if the asset had actually been sold. Under current law, valued assets held until death are not subject to income tax. Heirs only pay capital gains taxes on sale and only on profits since the previous owner’s death. However, the proposal allows family farms and businesses to defer paying the tax.