Proposed Changes to US Income and Estate Tax Laws

Christine Lucero

In this excerpt from SAM’s recent webinar event, Christine Lucero, JD, CFP®, CPWA® provides an update on the proposed changes to US income & estate tax laws, as of June 8, 2021. This post is the first of a 3-part series of excerpts from our June 2021 webinar: The Economy is Re-Opening, What Is The Path Forward? 


Biden’s American Families Plan

Joe Biden announced his American Families Plan on April 28th of this year (2021) to build a stronger economy that doesn’t leave anyone behind. The plan is to be substantially funded by tax increases, no surprise there, primarily on wealthy taxpayers. This plan is separate from the Made in America tax plan which deals with corporate taxes, and we’re not going to be discussing that today.

Further clarification was made in Biden’s Green Book issued on May 28th. This comes from the U.S. Treasury and we’ll be going over the details of this over the next few slides, but just be mindful that considerable changes can still happen in the weeks and months ahead.

So, under Biden’s Green Book proposal, he purports to raise the top individual federal income tax rate from 37% to 39.6%. The top rate would apply to income for individuals above $453k, and for married filers above $509k.

The proposal also taxes long-term capital gains and qualified dividends at ordinary income tax rates for households with AGI over a million dollars. So, the actual tax rate could be as high as 43.4% once you take into account the Medicare surcharge, and this is almost double the current rate which is at 23.4%, so a really big change there – and not a welcome change.

The proposal eliminates the deferral of tax on like-kind exchanges of real estate, known as 1031 exchanges, when the gain is greater than $500k. So, for real estate investors who have been able to shield the tax on these transactions, starting in 2022, if this passes, they won’t be able to do that anymore.

The proposal is silent on the $10,000 cap for state and local tax deductions, what we call the SALT deductions, which were put in place by the Trump Administration. And it’s also silent, surprisingly, on increases to estate tax rates and decreases to estate and gift tax exemption amounts.

The proposal triggers tax on appreciated property transferred by gift or at death. The assets transferred are treated as a realization event, basically as if they’ve been sold. It applies to gains above a million dollars per person.  There are exceptions for property passed to a spouse or charity, for certain tangible personal property not including collectibles, and for family-owned businesses and small-business stock. The existing capital gain exclusion of $250k per person, $500k for married filers, it would apply so you’re looking at a top exemption amount of $2.5M for married filers.

Note that most of these changes will be taking effect after December 31, 2021, except for the increase in capital gains and dividends rates, which right now would be retroactive to April 28th of this year (2021).


Other Bill Proposals That Have Been Introduced To The Senate

There are other tax proposals that are currently in the Senate for review – one of them is the STEP Act by Senator Van Hollen, which deals primarily with income tax reform, and For The 99.5% Act introduced by Senators Sanders and Whitehouse, which deals on the estate tax side.



So, looking at the STEP Act first, this is in line in some regards to Biden’s proposal. Taxes will be owed on unrealized capital gain on transfers of appreciated property, either by gift or at death. There are exceptions for transfers to spouses and charities. There is a million-dollar exemption just like under Biden’s plan for estates.

However, there is a departure from Biden’s proposal in two really important ways: One, is that there’s only a $100k exemption for lifetime gifts. And the second, is that there’s a retroactive effective date to basically January 1, 2021. So, any gifts or transfers made in this year would be subject to the capital gains tax if this were to pass.


For The 99.5 ACT

For The 99.5% Act, this deals again on the estate and gift side and all changes are effective January 1, 2022.

For estate tax exemption and rates, it looks to decrease the exemption to $3.5M per person. This is a significant change from the current $11.7M that each person has under the law.

It also looks to increase rates from the current flat 40% to a gradated rate of 45% for estates between $3.5M and $10M, with a top rate of 65% for estates of a billion or more.

On the lifetime gift side, it looks to reduce the exemption for lifetime transfers to one million dollars. This is huge because that is currently tied to the estate tax exemption, so we all have the ability to gift $11.7M today. And if this goes through, that’s going to go down to a million dollars.

It also limits annual exclusion gifts currently $15,000 per person to a max of two times the annual limit which would be $30,000 this year on gifts to some irrevocable trusts like ILITs specifically which could have an impact on some of our current clients’ estate plans.


What’s The Bottom Line?

Nothing has passed yet. Only proposals at this point. Any of the current proposals could come into play at some level.

There’s also a lot that I didn’t discuss, I tried to keep it to the most relevant parts for our client base but there’s certainly a lot more in these proposals.

There’s a lot of uncertainty, including retroactive dates under some of these proposals, so there really isn’t a best planning scenario.

However, estate and gift exemptions remain at an all-time high, so that does present a real opportunity to do something on the gift and estate planning side. 


Key Takeaways

  • Planning is personal to each client;
  • These are bold proposals that may not go into effect exactly as we see them today;
  • We’re here as always to discuss any planning strategies, whether on the income or estate tax side with you, and to coordinate with your accountant, attorney and other advisors as needed.


At SAM our dedicated team of professionals consider it our fiduciary duty to provide clients with the highest standard of care and service in the advisory world. To learn more about how we may help you, get in touch with a SAM advisor today.

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Video Recorded June 8, 2021

This blog post is not intended to be, nor should it be construed or used as, an offer to sell, or a solicitation or offer to buy any securities or interests in any strategy offered by Satovsky Asset Management, LLC (“SAM”). SAM is a registered investment advisor with the Securities and Exchange Commission – for more information see Please remember that different types of investments involve varying degrees of risk, and that past performance is not indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the strategies recommended or undertaken by SAM) will be profitable. Market index information shown herein is included to show relative market performance for the periods indicated and not as standards of comparison. The market volatility, liquidity and other characteristics of SAM’s portfolio composition are materially different from the securities listed on public market indices. Market indata. Opinions are as of date of video and are subject to change. A copy of SAM’s current written disclosure statement discussing our advisory services and fees continues to remain available for your review upon request. SAM undertakes no duty to update information presented herein.

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