If you’ve been following the latest legislative news, you’re likely wondering how the Build Back Better Act (BBBA) tax provisions would impact estate tax planning in Virginia. We felt this to be an issue needing some discussion since we’ve already received many calls and emails about it, so let’s talk about it here.
On September 15, 2021, the House Ways and Means Committee voted in favor of the tax provisions included in the $3.5 trillion BBBA. The BBBA focuses on implementing President Biden’s social and education policies.
Our legal team at PJI Law, PLC consists of highly experienced estate planning attorneys in Fairfax, Virginia. All of our lawyers maintain a thorough understanding of existing federal and state laws, stay abreast of proposed statutes, and can assist you in making changes to your estate plan if the tax code changes.
How Will the Proposed BBBA Legislation Affect Estate Planning?
Decreased Exemptions: Gift and Estate Tax
A certain amount of the total of the assets gifted or bequeathed in a given year is exempt from tax. Under existing law, the estate and gift tax exemptions stand at $11.7 million per person until January 1, 2026. The BBBA would lower the existing estate, gift, and generation-skipping transfer tax exemptions to approximately $6 million, effective January 1, 2022.
Non-Business Assets Valuation
Commonly in estate planning, we arrange the transfer of non-publicly traded assets that have been appraised at certain valuations. Under the BBBA, while this strategy would still be viable for interests in operating businesses, it would no longer be an option for family entities funded with marketable securities.
The BBBA creates a two-step asset valuation process. For the first step, any non-business assets would get valued according to current market prices, with no allowable valuation discount. For the second step, the rest of the transferred entity would receive a valuation based on willing buyer-willing seller analysis, ignoring the value of non-business assets.
Grantor Trusts: Income Taxation on Sales
As per the proposed Section 1062 in the BBBA, the new legislation would require you to pay capital gains taxes on appreciated assets sold to your irrevocable grantor trust, ending a popular estate planning strategy. Plus, losses sustained by depreciated assets sold to your grantor trust would not factor into your tax calculations.
Change in Estate Planning Strategy: Estate Taxation of Grantor Trusts
Some of the changes that will take place if Congress enacts the proposed BBBA legislation include:
- Insurance Trusts — Payment of future insurance premiums for policies held by a trust would become subject to the estate tax.
- Grantor Retained Annuity Trusts — As per the proposed Section 2901, Grantor Retained Annuity Trusts would no longer be beneficial because any appreciation during the annuity term would become taxable once the term ended.
- Spousal Lifetime Access Trust — A trust that provides for a spouse’s needs during the spouse’s lifetime would now be seen as a grantor trust, subjecting it to the estate tax.
Specific Real Property Used in Farming or Other Trades or Businesses
Under the proposed BBBA legislation, properties used for farming and other trades would be able to take advantage of material relief from the estate tax. The properties would get valued based on the use rather than their fair market value.
Choosing an Estate Planning Attorney Near You
The BBBA would directly impact Virginia’s estate tax planning. By choosing an attorney to guide you through the changes, you can focus on your business and family legacy rather than the intricacies of possible estate tax changes.
An estate planning attorney can assist you in the following ways:
- Create or review your personalized estate plan
- Guide you through the new rules and update your power of attorney
- Help keep your hard-earned money within your family
- Develop your business tax strategy
- Help you understand the BBBA
PJI Law, PLC: A Trusts and Estates Law Firm in Fairfax, Virginia Offering White-Glove Service
The BBBA will almost certainly affect your Virginia estate plan. If the BBBA gets passed, planned transfers to trusts will need immediate attention to avoid paying higher taxes. Our licensed estate planning lawyers at PJI Law, PLC will provide valuable tax advice and draft customized legal documents to carry out your wishes as closely as possible. Because we focus on each client’s particular story, you can expect personalized service and attention from our competent, professional staff.
Avoid probate with a solid estate plan that will serve as a financial safety net, protect your assets, and provide for your family’s future.
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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.