Financial Danger Ahead: See Your Financial Advisor/Attorney Now

Assuming a regime change in Washington, the Biden tax plan proposes monumental changes that will have a massive impact on how many individuals (this means you) have structured their estate plans and finances for decades. Some of the things that should be discussed NOW with your financial consultant:

1. 1031 tax free exchanges will most likely be eliminated. If you have planned on trading highly appreciated assets for other similar assets (perhaps with higher income production), you need to consider doing that by year end.

2. Step-up in basis will most likely be eliminated in estate proceedings. If you have a highly appreciated asset, it may make sense to sell it in 2020, and pay the capital gains tax at a significantly lower rate (see below).

3. Huge increases in capital gains tax rates are probable — if your income is in excess of a specific figure, presumably, $1,000,000. This would significantly impact anyone who has a highly appreciated asset who disposes it after 2020. Should you sell highly appreciated assets in 2020?

4. Death as a taxable event is a potential change to estate taxation. In other words, at death, even if an asset is not sold, any gain would be taxable. For anyone with an asset that has been held in a family for a lengthy period, this would create massive liquidity problems. Again, should one consider selling assets in 2020 to avoid the ratchet effect of the “forced sale” and potential massive capital gains tax at death in 2021 and beyond?

These likely changes will be the most significant to how many people have planned their financial lives in decades. All of these changes (and others) will most likely be enacted in 2021. Therefore, it cannot be overemphasized that you may need to make MAJOR changes to your assets and your financial plan during the rest of 2020.