Biden’s Tax Proposals and Estate Planning

Skadden Insights – September 2020

Amy E. Heller Andrew D. O'Gwynn

Democratic presidential nominee Joe Biden has provided limited information about his plans to modify the tax treatment of decedents and their estates. However, he has signaled that he supports raising estate taxes and changing the taxation of capital assets upon death.

Currently, the gift and estate tax exemption amount is at an all-time high: $11.58 million per person and $23.16 million per married couple in 2020. The Tax Cuts and Jobs Act of 2017 (TCJA) doubled the exemption from prior levels and provided for the enhanced exemption amount to automatically sunset at the end of 2025. If Mr. Biden wins the presidency, the sunset of the enhanced TCJA exemption amount may be accelerated or reduced even further, particularly if Democrats also win control of both the Senate and the House.

Mr. Biden also has indicated that he wishes to change the treatment of capital gains at death. Under current law, the income tax basis of assets owned by a decedent at the time of death generally is increased to fair market value. The basis step-up enables heirs to sell inherited assets free of capital gains taxes on appreciation that occurred prior to the decedent’s death. The Biden campaign has signaled that Mr. Biden would reintroduce an Obama administration proposal to impose a mark-to-market tax appreciated capital assets upon the death of the owner. Statements Mr. Biden has made also could be read to suggest that he plans to eliminate the basis step-up, without necessarily imposing a mark-to-market tax on death.

Particularly if the Democratic Party sweeps the White House, Senate and House, individual taxpayers may wish to consider triggering capital gains prior to the end of the year — both because death may no longer be an event that eliminates built-in gain in capital assets and because Mr. Biden has proposed to increase the capital gains tax rate for high-net-worth individuals to 39.6% (his proposed top ordinary income tax rate).

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.