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How Might the Build Back Better Act Impact Estate Planning in CA?

  • Posted on: Jan 22 2022
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You likely have heard of something called the Build Back Better Act, but may not know what exactly it is. The Build Back Better Act is a plan proposed by the Biden Administration intended to help Americans deal with a variety of issues such as COVID-19 relief, healthcare, housing, clean energy, infrastructure, and taxation. So far, part of the Build Back Better Act has been signed into effect, while it remains to be seen whether or not the rest will ever get through Congress. 

You may be wondering how this Act will impact your estate planning needs and what, if anything, you should do in response. Here’s what you should know about how the Build Back Better Act may impact your estate planning in California. 

The Impact on Estate Planning

Under the Build Back Better Act, President Biden has proposed a large number of changes to various industries (aforementioned) within a ten-year period of time. While the Act lays out numerous changes to problematic issues, one of the major issues is how the 2.43 trillion-dollar plan will be funded.

One proposed suggestion that some Democrats have made is to implement a tax plan. However, this plan would have a wide-reaching impact on tax rates on income, corporate earnings, gifts, and estates. 

Here are three major changes that would be implemented if the tax plan were to pass. 

1. The plan would reduce the estate, gift, and generation-skipping tax exemptions. 

At present, the estate, gift, and generation-skipping tax exemptions only require those who receive property transferred to them if the amounts, when combined, exceed $11.7 million. However, should the Build Back Better tax plan pass, these numbers would be reduced to $3.5 million for transfers at death and $1 million for lifetime gifts.

Additionally, these gifts valued between $1 million and $3.5 million would be subject to a 40 percent tax rate. Those valued from $3.5 million to $10 million would be taxed at 45 percent; those valued between $10 million and $50 million at 50 percent; those valued between $50 million and $1 billion at 55 percent; and those over $1 billion at 5 percent.

 2. The plan would increase the tax rate for those making more than $400,000 annually. 

Currently, Americans who earn more than $400,000 per year are taxed at 37 percent. But under the proposed plan, this rate would increase to 39.6 percent. While it may not seem like a lot, it certainly adds up. Someone who makes $400,000 for the year would face an additional $10,400 in taxes annually. 

3. The plan would increase the top capital gains rate.

When an asset gains value, or “appreciates” over a period of time that they have owned it, they must pay tax when they sell it. This is called the capital gains tax rate. At present, the top capital gains rate is 20 percent. However, under the proposed Build Back Better Act, this rate would increase to 25 percent, with an additional 3 percent on all income exceeding $5 million of the modified adjusted gross income. 

The Law Offices of Brian L. Fox, APLC Help Those in CA Who Are Handling a Loved One’s Estate

As you can see, the proposed Act and its suggested tax changes would have a significant impact on your finances and those of your loved ones if not properly accounted for. While the law is always changing, a knowledgeable and experienced California estate planning attorney is on top of it at all times. He or she can help you to establish a comprehensive estate plan and update it as needed in order to adequately you’re your goals and needs. 

At the Law Offices of Brian L. Fox, we work with our clients to ensure that their assets and their interests are best protected. To learn more or to schedule a consultation, schedule a request or call us at 805-638-9204 today!

Posted in: Estate Planning