Will the Build Back Better Plan Change Your Estate Plan?

american flag flying in front of capitol building

The Democrats in the federal government have been working hard to pass President Joe Biden’s Build Back Better Plan. But as often happens in legislation, the bill currently up for debate isn’t the same as the proposal made earlier this year. Find out what did and did not make the cut, and whether you will need to update your estate plan after the bill becomes law.

How the Build Back Better Plan Started

The anticipated version of President Biden’s Build Back Better Plan which was making news earlier this fall contained over 880 pages of new and amended laws. The White House called it “The most transformative investment in children and caregiving in generations.” However, it was important to Biden and the Democrats that the proposed framework “is fully paid for.” One of the ways it did that was to propose substantial estate tax changes that would have affected families in Michigan, and across the country. The estate planning changes in the version of the Build Back Better plan presented to the House Ways and Means Committee included:

  • Reducing the estate tax and gift tax exemptions from $12 million to $6 million per person.
  • Taxing estates above that exemption at a rate of up to 40%
  • Taxing the transfer of property into a grantor trust (including GRATs, QPRTs, and CLATs)
  • Adding a 3% tax on estate and trust income and over $100,000 per year
  • Eliminating the ability to transfer after-tax IRAs to Roth IRAs for taxpayers with income over $450,000 per year (the so-called “back door Roth.”)
  • Accelerating the minimum distribution from IRAs with balances over $10 million

Together, these changes in estate planning laws would have required many wealthy families to rework their trusts and estate plans. To avoid paying a substantial percentage of their assets to the government, they would need to adjust their strategies away from grantor trusts in favor of other non-probate strategies for passing wealth.

How It’s Going

As often happens with legislation, the bill that was proposed isn’t the same as the bill that came up for a vote. While the House of Representatives passed the Build Back Better plan on November 19, 2021, that version did not contain many of the estate planning changes tax lawyers and estate planning attorneys were anticipating. Instead, Congress voted on the Framework for the Build Back Better Act released on October 28, 2021. This version contained none of the proposed estate planning changes.

As of early 2022, the Senate had yet to vote on the Build Back Better Plan. It is still possible that the estate planning changes could make their way back into the Senate version of the bill. However, given the narrow divisions and stiff opposition in the Senate, it seems unlikely the changes in estate planning laws will be part of the final version.

What Does the Current Version Mean for Estate Plan Changes?

Originally, when the estate tax changes were proposed, they would have applied as early as January 1, 2022. That sent families scrambling to their estate planning attorneys before anyone knew what the final version of the bill would look like. Since the House’s version of the Build Back Better plan does not include estate planning changes, that removes the urgency for wealthy families to update their estate plans.

Keep Your Estate Planning Up to Date with Current Laws

However, this does demonstrate just how important it is to meet with your estate planning attorney regularly, even after your trust is funded and your estate plan is fully executed. Even if your beneficiaries and wishes remain the same, changes in estate planning laws can sometimes cause the best laid plans to go awry. If you haven’t looked at your estate plan in the last few years, it is a good time to schedule an appointment with your attorney to go through an estate planning checkup.

At NSSSB, our experienced estate planning attorneys make it a point to stay up to date on all the potential changes to estate planning laws. We have years of experience in writing estate planning documents that prepare for the future and the possibilities that may arise. We also know how to modify an existing estate plan to protect your assets and your family from government changes. Click here to schedule a consultation with an estate planning attorney to update your estate plan today.

Categories: Estate Planning