In August, presidential candidate Kamala Harris disclosed some of her proposed tax policies. Kamala Harris’s proposal brings significant changes to estate planning that would increase taxes and substantially impact how individuals and families manage their wealth and plan for the future.
This article covers a few of the proposed policies and their implications. To read the entire proposal click here.
1. Lower the Estate Tax Exemption: In 2024, individuals can leave $13.61 million (or a combined $27.22 million for a married couple) to the next generation without incurring estate tax. Presidential candidate Kamala Harris proposed policy would reduce this amount to $3.5 million. The $3.5 million refers to the amount of money or value of property that an individual can transfer, either during their lifetime (as gifts) or at death (as part of their estate), without incurring federal estate or gift taxes. This would result in many more families being subject to estate tax.
2. Increase Estate Tax Rates: In addition to lowering the exemption amount (explained above), the proposed policy would increase the estate tax rates. Currently, the highest tax rate for a taxable estate is 40 percent. The proposed policy would increase the estate tax rate to 55, 60, or 65 percent depending on the size of the taxable estate.
3. Revised Gift Tax Regulations: The proposal also addresses gift tax rules, potentially reducing the annual gift exclusion amount and lifetime exemption limits. In 2024, an individual can gift up to $18,000 per donee without incurring gift taxes. The proposed policy would reduce this number to $10,000. This adjustment could influence decisions regarding asset transfers to family members, complicate the ability to fund irrevocable trusts, and necessitate careful planning to manage the associated tax implications.
4. Modifications to Stepped-Up Basis Rule: A significant change under consideration is the alteration of the step-up in basis rule. Traditionally, this rule allows heirs to inherit assets at the fair market value, effectively resetting the basis for tax purposes and wiping away capital gains. The proposed modifications could remove the step-up in basis for inherited assets, impacting how inherited assets are valued and taxed.
5. Increase Income Taxes: The proposed changes would increase the top marginal income tax rate to 39.6 percent.
6. Impose Surtax on Estates and Trusts: The proposal would impose an additional tax of 5 percent on trusts and estates consisting of the modified adjusted gross income of the taxpayer that exceeds $200,000, plus 3 percent of so much of the modified adjusted gross income of the taxpayer as exceeds $500,000.
In summary, Kamala Harris’s proposed tax policy marks a major transformation in estate planning and wealth management. The proposal would affect a considerable portion of Americans and impose a 55 percent tax on inherited assets over the exemption amount. Individuals, families, business owners, and professionals need to monitor upcoming tax legislation to protect themselves, their families, and their clients’ future from estate taxes. As these proposals advance, estate planning strategies will need to adapt to the shifting estate tax environment.
*This article is meant for informational purposes only. Please recognize that nothing in this article constitutes legal advice. If you have any questions, comments, or seek legal assistance, please call one of the attorneys at Wakefield Law, P.C.