Death, Taxes, & Tax Law Changes

Written By: Mac Frasier

Director of Planning, Advisory Services


It is probably time to update the old saying “there are only two certainties in life: death and taxes” to include “changes to the tax code.”  In my lifetime, there have been over 60 major tax laws enacted according to the Tax Policy Center, and I am still hanging onto my 30s. Unfortunately, 2021 does not appear to be any different, as the new Administration has some bold initiatives and some even bolder ideas on how to pay for them, at least some of it.

President Biden and other congressional leaders are expected to propose numerous tax changes aimed at funding infrastructure improvement, but for the purpose of this article I will only focus on four of the most impactful.  It is important to note that at this point we are only talking about proposed legislation and with tight margins in the House and a 50 / 50 split in the Senate any new tax changes will need to overcome some significant hurdles.    Also, before making any changes in your tax strategy it is important to speak with your advisors (Wealth Advisor, CPA, Estate Attorney)

Individual Income Tax

Currently the top bracket for individual income taxes is 37% which for Married Filing Jointly taxpayers applies to taxable income in excess of $628,300.  The proposed change would increase the top tax rate to 39.6% and lower the income threshold to $400,000 for a married couple.  Of all the proposed tax changes we are highlighting this one seems to be the most likely to happen.

Planning Opportunities
  • Accelerate near-term income
    • Business Distributions
    • Bonuses in 2021
    • Exercising of Stock Options
  • Consider Roth IRA conversions

Long-Term Capital Gains & Qualified Dividends 

It has been proposed that the tax rate for qualified dividends and capital gains go to 39.6% for taxpayers with an adjusted gross income (AGI) in excess of $1,000,000.   This would be nearly double current top rate of 20% and have a significant impact to high income earners.  Though this change is likely to happen as well, many tax policy experts believe the increased rate will be closer to 25-30% versus the proposed 39.6%.

Planning Opportunities
  • Realize capital gains only when necessary, to fund goals and manage risk.
  • Use lower income years (AGI below $1,000,000) as an opportunity to realize capital gains.
  • Use tax-deferred accounts (IRAs) to hold high growth potential investments or investments that have high turnover
  • Gift highly appreciated securities to charities instead of making cash contributions
  • For taxpayers with significant capital gains and a need for current income consider the use of a Charitable Remainder Trust.

 Basis Step-Up at Death

During the 2020 precedential campaign, President Biden proposed eliminating the step-up in basis rule.  Presently, the cost basis of assets is “stepped-up” to the fair market value as of the date of death, which resets the tax basis and in turn reduces capital gains taxes owed.  Due to the complexity of changing this law and the lack of specific details, this one seems like a change that is less likely to occur.

 Planning Opportunities
  • Consider gifting low basis assets for charitable giving
  • For persons with low basis stock and a need for current income cosnider a Charitable Remainder Trust
  • Consider using to annual gift exclusions ($15,000 / year per beneficiary) to transfer assets out of your name before death.

 Gift and Estate Tax

The Tax Cuts and Jobs Acts of 2017 doubled the Estate Tax exclusion which in 2021 means and married couple can shelter $23,400,000 from estate taxes ($11,700,000 per taxpayer).     While this legislation reduced the number of taxpayers that would be subject to estate taxes.  It is important to note that these changes are set to expire 12/31/2025.   We are expecting to see numerous proposals aimed at reducing the exemption amount to $3,500,000 – $5,000,000 per person.  This would impact a lot of taxpayers who previously did not have to worry about estate taxes.  It may be hard getting more moderate Congress members on board with such drastic changes to the current law especially with mid-term elections coming up next year.  I believe the more likely scenario is legislation focused on limiting more complex estate planning techniques such as Grantor Retained Annuity Trusts, Generation Skipping Trust, and discounting.

Planning Opportunities
  • Consider using some or all of your lifetime exclusion amount in 2021 to remove assets from your taxable estate

What should I do next?

While we are still in the early stages of any tax law changes it is a good time to begin having the discussions with your advisors about possible strategies.  This is of particular importance for high income earners of people with large net worth’s ($10,000,000 +). Implementing some of these strategies can take time and putting off these discussions to the last minute may cause you to run out of time.


Oakworth Capital Bank does not provide tax or legal advice.   All decisions regarding the tax and / or legal implications of these strategies should be discussed with your tax and / or legal advisors before being implemented.