As the new year brought in a new executive regime, there are many tax and financial implications that follow. With Biden’s tax plan, one of the key areas that Biden has addressed is eliminating the “step up in basis” for transfers of assets at death.

The step up in basis allows for the transfer of one’s assets upon death to intended beneficiaries or heirs without the beneficiaries/heirs having to pay a capital gains tax upon the sale of that asset. The appreciated gain is not taxed, and therefore allows for an income tax savings with the transfer. For example, if your great grandmother acquired some real estate property in the 1980s, and she has kept the property throughout her life, it is likely that property has appreciated in value over time. This appreciation would have caused your grandmother to pay capital gain taxes on the property if she were to sell the property while she was alive. Instead, if your grandmother holds onto the property until she dies, then when the property passes onto you, you will receive the property at its fair market value. Therefore, you would getting both a higher value of the property than your grandmother once had, and you would not be subject to the same capital gains taxes. Instead, if you were to sell the property at the market value price, you would only have to pay the money on profits calculated from the day of inheritance. However, you could keep the property and devise it to your children at your death. This is why it is critical to understand how step up operates when executing your estate plan.

While it may seem that the step up only applies to individuals with heaps of money, this is really not the case. The rule applies to a variety of assets that most people commonly have, such as: artwork, boats, securities, stocks, etc. (i.e., any highly appreciated asset).

Biden’s new plan of eliminating the step up in basis could impact you and your family in various ways. Your heirs are most likely to feel this impact. Considering the market ebbs and flows, the general consensus is that certain property appreciates over time. The step up in basis works to remove a layer of taxes on transferred property by eliminating extra taxation on property transferred to heirs and any capital gains taxes on any appreciation within the estate’s assets. Removing the rule will not only have beneficiaries/heirs pay the tax on the appreciation of property devised, but it will also burden beneficiaries/heirs by enforcing them to verify the property or assets original cost basis upon the decedent’s death, which can be very cumbersome for people.

While it seems like removing the step up in basis seems rational, it actually may increase the risk of individuals paying even more on inherited property, which ultimately affects everyone—not just the wealthy.

It is always a good idea to discuss income tax planning with a trusted estate planning attorney to ensure your assets are dealt with in a proper fashion.