If you follow the news regularly, or even once in a while, you’ve probably heard about President Biden’s proposed signature piece of legislation called the Build Back Better Act (BBBA). While it is now looking unlikely that the BBBA will become law in its present state, it has been passed by the House of Representatives, so it shouldn’t be dismissed out of hand. Most recently a leading Senator has indicated that he will not support the bill as it currently stands. However, the House Speaker is still optimistic and is assuring House Democrats and others that an agreement could still be reached early in the new year. If passed, this legislation could potentially significantly impact estate planning in Virginia.
If you have an estate plan or are considering making one, it's essential to be aware of potential legislation like the BBBA. Just because it hasn’t been signed into law yet doesn’t mean you shouldn’t account for it. And if you wait until the law is passed before adjusting your estate plan, you could find that your plan was negatively affected. Estate planning isn't necessarily a one-time effort, and you should frequently evaluate your plan and make necessary adjustments.
If you are wondering how to ensure your Virginia estate plan is set up to handle potential changes in the law, contact McCarthy & Akers, PLC today. Our estate planning lawyers can review your existing estate plan, or if you don’t yet have one, help set up a plan to prepare you to handle the BBBA and other potential legal challenges.
How the BBBA Will Impact Gift and Estate Tax
The BBBA proposes to reduce the federal estate and gift tax exemption by over half. Consider making gifts as soon as possible, either outright or through a trust which can be advantageous for a couple of reasons. Although the exemption is currently $11.7 million per person, there is no claw-back provision if it is reduced.
All trusts in place before the date of enactment are grandfathered under the grantor trust rules, which is a common estate-planning strategy for transferring assets to loved ones in a controlled and tax-efficient manner. Under the BBBA, you would have to pay the gift tax for all gifts starting at $5 million. The good news is that the BBBA, as it is currently written, only applies to gifts made on or after January 1, 2022, and is not retroactive.
If you plan to make a sizable gift of over $5 million, you should plan to do so before the BBBA becomes law. If you are interested in learning more about how the gift and estate tax could impact you, our estate planning attorneys can help you understand the law and make the best decision for you and your family.
Changes to the Grantor Trust
If it becomes law, the BBBA will impact estate plans in multiple ways. One of the areas that will be affected is grantor trusts. Under current law, a grantor providing funds to a grantor trust can receive income tax benefits for doing so. A grantor trust allows the grantor to pay all income tax personally on the income gained by the trust. By doing so, the grantor can ensure that more assets remain in the trust and continue to grow without being diminished by income taxes.
However, under the BBBA, grantor trusts will likely no longer provide the same benefits. Sales between a grantor and their grantor trust would be treated as taxable, even though the law does not currently treat them as such.
In estate planning, it's common to arrange for the transfer of non-publicly traded assets that have been appraised at a specific value. For tax purposes, non-business assets are used for the production of income; they are not used for the active conducting of a trade or business.
Under the BBBA, however, discounting the valuation of non-business assets would no longer be permitted, which could significantly impact your estate planning, especially if you plan to transfer an interest in a family partnership or LLC. The BBBA creates a two-step asset valuation process. Under the first step, any non-business assets would be valued according to current market prices. This would not allow for any valuation discount. Under the second step, the rest of the transferred entity would receive a valuation that ignores the value of non-business assets.
Transferring non-business assets can be challenging to understand. You should contact an experienced estate planning attorney if you are interested in transferring non-business assets as part of your estate plan.
Choosing an Estate Planning Attorney Near You
If you are concerned about how the BBBA could impact your Virginia estate plan if passed, contact McCarthy & Akers, PLC today for a free consultation. You can skip typing “ estate planning lawyer near me” into Google and contact us directly. Our team of experienced estate planning attorneys are professional, friendly, and prepared to come to your aid, turning your complicated legal situation from a headache into a painless and efficient process.
And if you don’t have an estate plan already in place, don’t worry. We can talk you through the process and help you establish an estate plan that works for you and your family. Your needs come first and are our first priority. We are here to help you plan for your future. At McCarthy & Akers, we make choosing a legal partner easy, and our legal services are the “go-to” option in our community. We are a professional and trusted community partner with a history of putting our expertise at your service, helping arrange all your estate planning matters, making the process easy to understand, and giving you peace of mind. You can call us at (540) 277-9865 or fill out our contact form here.
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The information in this blog post (post) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.
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