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Potential Tax Changes in 2021 Loom Large for Estate Planning

January 7, 2021

By: M. David Stallings

The U. S. House of Representatives has retained its Democratic majority, the Senate now tilts blue in large part to a historic assist from Georgia, and Joe Biden’s presidential victory has been certified. Get ready for higher taxes.  

Since the passage of the Tax Cuts and Jobs Act of 2017 (“TCJA”), which basically doubled the amount of wealth that individuals can transfer without incurring an estate or gift tax, progressive tax policy proponents have led the charge to undo those changes.  COVID-19 has only complicated the issue.  With two stimulus packages approved and a third likely in the works after Mr. Biden takes office, the obvious questions remain: what existing tax breaks are in the crosshairs and where will the money come from to pay for these unprecedented stimulus payments?  A most likely target is the estate and gift tax.   

Unless Congress extends the provisions of the TCJA, the current estate and gift tax exemptions, also known as the Basic Exclusion Amount (currently $11,180,000 for individuals and $22,360,000 for married couples, indexed each year for inflation), will return to pre-TCJA levels on January 1, 2026.  That is, of course, if Congress does not modify the current tax structure between now and then. 

With Democrat majorities in both the House and the Senate, the Biden administration will see little resistance to its policy agendas, which many believe will include the undoing of the TCJA – much like Republicans were able to do over the last four years with rolling back provisions of the Affordable Care Act, also known as “Obamacare.”  The effect would be to expose more of an individual’s assets to estate tax, which at a rate of nearly 40% is a pretty serious bite.

Although the Biden Administration has set forth a number of high-priority issues for the first 100 days – coronavirus aid, climate change, immigration reform, and foreign policy, to name a few – not to be lost in the mix is the potential reversion of the Basic Exclusion Amount, or even lowering it past pre-TCJA levels.  Also being discussed is the elimination of the cost basis “step-up” at death, which virtually extinguishes the capital gains of a decedent’s appreciated assets.  Dissolving the step-up in basis would thus generate a massive influx of capital gains tax revenue.  If passed, these changes could have significant repercussions on current estate and gift planning strategies. 

We urge caution before overhauling any estate plan before new tax legislation actually occurs, but certainly these are developments to monitor over the coming months.   In the meantime, reviewing your current estate plan with your wealth planner and tax advisor is a prudent start to prepare for the paths that may lay ahead. 

David Stallings is a partner in the Estates & Trusts group at Niles, Barton & Wilmer.  He can be contacted at 410-783-6379 or