What Does A Biden White House Mean For Estate Taxes?

Now that the transition to a Biden White House has officially begun, what will his presidency mean for estate taxes? Many people have been gifting like mad these last few months in anticipation of a potential blue wave in the November election. The concern was that if Democrats controlled the White House and both houses of Congress, the Democrats would undo Trump’s 2017 tax act and reduce the estate tax lifetime exemption (currently set at $11,580,000). The blue wave did not happen, so where are we now?

Biden will soon be in the White House and the Democrats will control the House of Representatives, but control of the Senate is still unclear. Georgia’s two Senate seats (currently held by Republicans) are still up for grabs and will be determined in a January runoff election.  

After November’s election, Republicans now have 50 seats in the Senate and Democrats 48. Democrats need to win both seats in Georgia to take control (Kamala Harris as incoming Vice President would break the tie). Anything less for the Democrats would mean Republican control of the Senate.

No matter who controls the Senate, it is unlikely that tax reform will be on top of Biden’s agenda. Controlling COVID will be the new administration’s first order of business. Could tax reform be next on the agenda if Democrats control the Senate? Possibly, although that is unlikely given the other platforms Biden ran on. Biden may be more inclined to address issues that speak to his supporters’ concerns such as Medicare and the environment rather than tackle tax reform right off the bat. Plus, he needs to work on healing our nation, and tax reform generally does not do that.  

If Republicans control the Senate, tax reform is even less likely. Although at some point someone is going to have to pay for all the COVID relief that the government has been shelling out so some form of compromised tax bill may be in the future. And what better way to raise revenue than going after dead people’s money? If tax reform does come in 2021, many think it will happen toward the end of the year and be effective in 2022.  

That means you may have an extra year (or more) to make those gifts. If Congress does nothing to change the tax laws, the current $11 million lifetime exemption amount (adjusted yearly for inflation) afforded by Trump’s 2017 overhaul of the federal tax law is scheduled to expire in 2026. The amount will then drop back down to $5 million (also adjusted for inflation). That could give you an extra five years to make your gifts.

Keep in mind that Biden’s campaign website did not actually state his proposal for a new estate tax exemption amount. Many of the Democrats who vied for the nomination advocated a $3,500,000 estate tax exemption. In addition, the Tax Policy Center estimated that Biden’s plan would reduce the exemption to $3,500,000. Even though that number has been bandied about, we do not know what number Biden or his team actually have in mind. Or what the number will actually be after all the backroom politicking that takes place.  

Is tax reform possible in 2021? Yes. If nothing else, the last four years have shown us that anything is possible in U.S. politics. However, you may have an extra cushion of time to make your gifts.  

If you were thinking about gifting and did not pull the trigger this year, you may want to revisit your decision in the New Year. If you want to lock in your exemption amount this year, don’t delay. Many estate planners, inundated with clients looking to gift, are imposing deadlines after which they will not take on any client requests for gifting.