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Drivers That May Impact Your Estate Planning In 2021 And Beyond

When we talk about real estate planning in 2021 and beyond, what do we do with our wealth and invest if tax rates start to rise? How has technology changed the real estate planning process? Should you sell the business or change your succession plan in light of the potential legal changes coming from DC?

Estate planning is a complex area that needs to be reviewed over time. Laws can change, markets move, and goals will change, which requires updating real estate plans.

There are currently several legal proposals that could affect your property planning at some point – the most prominent being U.S. Family Plan Act, which includes proposals to increase the usual rates of income tax and capital gains tax. In addition, there are real estate-specific proposals that would dramatically affect many existing plans.

Let’s dive into three different areas of your estate plan that could be affected by U.S. family plan law.


Usual income

Ordinary income may not stand out as a driver of real estate planning. This may interest you : Should I switch my annuity to a Roth IRA?. However, it drives a lot of our daily behavior – who pays for what, what is left for us to invest – and that is why it is a good starting point for this conversation.

Changes in normal income rates could change which assets you still hold for life and which assets you could pass on to your heirs sooner. In some situations, if the usual income rate increases or decreases, you may be encouraged to transfer the usual income-generating property to a family member or loved one with a lower income as part of the overall property planning process.

The U.S. Family Plan Act proposes a refund of the lowest marginal tax – which has been reduced to 39.6% by the Tax and Job Reduction Act. That rate is currently 37% and, according to the White House, is used exclusively by 1% of households. In addition, it would change other tax ranges, creating some tax breaks for lower-income Americans.

The Biden administration’s plan would basically be a combination of tax cuts and tax increases when it comes to normal income. For higher-income Americans, that would probably be a tax increase, but for more middle-class Americans, it could be a tax cut. But a lot of this comes down to framing. For example, I recently listened to a presentation by Bob Keebler, CPA / PFS, MST, AEP, CGMA, on proposed tax changes, and he compared tax rates before TCJA, today’s rates, and proposed rates in the American Families Act.

It is interesting that people do not pay attention to the ranges of the American family plan in relation to the previous rates. In some of the lowest ranges – which are healthy incomes of up to $ 200,000 – the U.S. Family Plan Act actually proposes more favorable tax rules than pre-TCJA. So, if the U.S. Family Plans Bill had been passed in 2017, it would have been a tax cut out in many areas – including corporations and individuals.

For example, let’s say you earn $ 300,000 a year. You used to pay 33% in 2017. Under the U.S. Family Plans Act, you would pay 24%. That’s a 9% drop for most Americans at that threshold.

In addition, large expenditures were attached to this bill, including expanded tax breaks for families with children and severely expanded funding for education. But with all these new tax cuts and spending, there has to be tax revenue somewhere, and Biden’s administration has prioritized forcing the rich to “pay what they owe”.

Ultimately, this change could affect estate planning in two main ways. The first is what we talked about earlier – transferring property that brings income to other family members if you are subject to higher income tax rates.

Second, it affects how much money you take home to invest and save. With higher tax rates, this could change your long-term strategy of wealth accumulation and consumption, which will affect your overall property plan.

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Capital gains increases

Today, applicants for a joint application must have over $ 500,000 in revenue before they can reach a capital gains tax rate of 20%. In fact, most Americans fall into a capital gains tax rate of 0%. See the article : Kingston: Understanding the 60-day rollover rule | Business.

However, the proposed U.S. Family Plan Act would significantly increase rates on long-term capital gains and eligible dividends, from 20% to 39.6% – plus 3.8% of net investment income tax – with income in excess of $ 1 million.

Although approximately 0.3% of Americans have a million dollars in income each year, this would ultimately affect a lot of property planning and business owner decisions. A business owner who has a million dollars in income and a lot of capital gains when he sells a business could reduce his real money after tax that he gets from sales by almost 20% under those changes. Such tax changes are difficult for people to accept because we have shaped them for so long that long-term capital gains receive preferential tax treatment, and this change would align these rates more with the usual income rates for higher-income individuals.

Let’s look at a potential real-world scenario – if it’s simplified. Let’s say you have $ 1.2 million in capital gains – $ 200,000 would be at a rate of 39.6%. In addition, if you have more than $ 200,000 (for individual files) or $ 250,000 (for shared file submitters) in adjusted personalized gross income, you would also have that income tax of 3.8%.

It will be interesting to see if these proposed changes will deter people from implementing them or will make them sit back and hold on in hopes that rates will drop at some point.

This could lead to some people changing the property planning process. Some might try to keep the property until death, instead of selling it while they are alive, in the hope that their heirs will get an improved basis after death. Other people may consider donating more prized property and property to charity instead of paying higher taxes when selling the property. Business owners may want to sell businesses faster, make a profit from year to year, or engage in installment sales, as opposed to one-year business sales.

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Removing reinforcements in the ground rules

Another proposal that could have a direct impact on estate planning is a proposal to amend and remove some reinforcements to the basic rules. To see also : Taxes in Retirement and Roth IRA Conversions: What to Know. In general, the tightened rules say that the valued property at the time of death passes to your heirs at a value valid at the time of death, not on your basis.

This means that many stocks and other properties can be valued over a lifetime and left to the family after death without capital gains tax. Today, not all property receives this favorable tax treatment, as traditional IRAs, 401 (k) and other retirement accounts are taxed to heirs in a similar way as the owner and do not receive basic treatment.

The U.S. Family Plans Act would close the tightened rules for profits in excess of $ 1 million, or $ 2.5 million per pair, combined with an exemption from real estate for your principal residence under Section 121. This would again mean most Americans would not see a change , but for those who value their investments, jobs and assets a lot, this would be a significant change.

This could change which assets you want to leave to the heirs and which assets you should spend in retirement. This could even in some situations cause people to make multiple Roth conversions or charitable donations, including remnants of charitable funds or donor-advised funds. In addition, some people may consider buying life insurance to compensate for increased taxes or liquidity problems caused by a change in enhanced base removal.

If your property plan relies on ground rules, you will probably need to revisit the plan if they eventually change.

Three planning points

In light of these potential changes, I wanted to set out three planning considerations:

First consider how charity planning can play a role in your estate plan. A gift of valued property to a donor fund or charity can be an effective way to give, while reducing taxes. You can get a deduction for your gift and avoid having to pay a profit on the valued property, because the charity can sell it without paying taxes.

Most people give cash gifts to charities and do not consider donating shares or other valuable assets, which can be more effective, especially in light of a potential increase in capital gains or normal income rates.

Second, review user appointments and who gets what funds. It’s a good idea to review users every few years to make sure they’re still in line with your goals. In some cases, you may need to transfer property between spouses based on their income or your income.

Leaving property equally to all children is not always the most efficient way to plan a property. If you leave common income-generating assets, such as an IRA, to a high-income heir, but leave the Roth IRA to a lower-income heir, you can create additional taxes and less wealth that actually pass on to your heirs. Therefore, when planning a property, it is important to consider the tax consequences – both for yourself and for your potential heirs.

Third, make sure your assets have the right amount of liquidity. A major problem can arise with business or valued assets if the estate does not have sufficient liquid assets. This may result in the property or heirs having to sell property they would otherwise want to hold to pay transfer tax, property costs or income tax.

Life insurance can be an effective way to generate non-taxable death benefits and cash on assets for liquidity purposes. If the laws change, it could significantly increase the tax on your property, which means that a review of the liquidity of the property and the need for cash would be prudent.


Although the U.S. Family Plans Act and other acts are still in the proposal phase, it is important to understand how this could affect your estate plan. For example, there are also proposals that would reduce exempt property taxes and increase property and gift taxes above the current high water of 40%. If these rules are adopted, it would further complicate the property planning process.

Real estate plans need to change as laws and your goals change. Increased taxes and the complexity around which assets will receive preferential treatment if left to heirs could fundamentally change costs, taxes, ownership structure, and overnight liquidity needs of real estate.

If you need help with real estate planning, contact your financial expert.