With a new administration comes new tax laws. It is a tradition that occurs every four to eight years, and with the new administration, many wealthy individuals want to know what is in store for them. And, the news is that they may see over a 60 percent increase in the inherited wealth tax.
The new tax plan
According to a recent analysis by the tax policy research group, Tax Foundation, the increase in inheritance tax will be approximately 61 percent. This is based on the proposal that the capital gains tax at the top will double, along with eliminating the step-up basis tax benefit, and folding in the estate tax. This proposed new tax rate will be the highest tax rate in nearly 100 years, and it is part of the American Families Plan proposed by the new administration.
Will the American Families Plan pass?
As with so many people in life, maybe. Because of the current breakdown of Congress, including moderate Democrats, no one knows if the American Families Plan can pass. But, even if it does, only the wealthiest of wealthy taxpayers will face the new maximum 61 percent rate. Though, it is still something to keep an eye on for estate planning purposes.
An example from the current system
Let us look at an example of a family that owns a business worth about $100 million. Under the current tax system, this business could pass to family without incurring any capital gains taxes. This is because of the step-up tax benefit where the family would only owe capital gains if they sold the business later for a higher valuation.
An example from the proposed system
Under the American Families Plan, the tax would be nearly $43 million under the American Families Plan, which is a 39.6 percent capital gains rate. This is in addition to additional investment tax income as well, and an estate tax of 40 percent on about $57 million. This would be a total tax of over $61 million. For wealthy Fort Lauderdale, Florida, residents, contact your estate planning attorney now.
