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President Biden’s Green Book and How it Affects Your Wealth

Posted by James Burns | May 07, 2024 | 0 Comments

On March 11, 2024, the Biden Administration released its Fiscal Year 2025 Budget, along with the “General Explanations of the Administration's Fiscal Year 2025 Revenue Proposals,” commonly known as the Green Book. This comprehensive document details significant changes to the tax code that could have substantial impacts on your wealth. For example, the Green Book proposes to increase the top marginal income tax rate to 39.6%, up from the current 37%. Moreover, it introduces sweeping changes in estate, gift, and capital gains taxes, including the elimination of the step-up in basis. Let's break down how these changes can affect your financial planning and wealth management.


1. Income Tax Marginal Rates

Key Changes:

  • Top Marginal Income Tax Rate Increase: The Green Book proposes to raise the top marginal income tax rate from 37% to 39.6%.


  • Minimum Wealth Tax: A minimum 25% tax on those with net assets exceeding $100 million.

Actionable Tip:
Consider accelerating income to take advantage of current lower rates. If you are expecting significant income next year, recognize it in 2024 to minimize the tax hit. Consult with a tax advisor to strategically plan your income recognition.

Mistake to Avoid:
Avoid deferring income in the hope that rates will remain the same or lower. The proposed rate increase is likely, and failing to prepare could lead to an unexpected tax bill.

California Case Law/Statutes:
California follows federal tax guidelines but has its own income tax rates. The Franchise Tax Board will enforce changes accordingly.

  • Example:
    Jennifer is a high-income earner in California with a regular annual income of $400,000.

She is planning to sell her consulting business in 2025, expecting a capital gain of $1 million. The proposed Green Book would increase the long-term capital gains rate to 39.6% for those earning over $1 million.

Combined Federal and State (California) Impact:

  • 2024 (Current Federal Rate + California Rate):
    Federal Tax: $238,000
    California Tax: $133,000
    Total Tax Bill: $371,000

Net of After Sale: $629,000



  • 2025 (Proposed Federal Rate + California Rate):
    Federal Tax: $446,000
    California Tax: $133,000
    Total Tax Bill: $579,000

Net of After Sale: $421,000

Combined Tax Increase: $208,000

Deferred Sales Trust Solution:

A Deferred Sales Trust (DST) is an estate planning strategy that allows individuals to defer capital gains taxes by transferring assets to a trust before the sale. Here's how it would work for Jennifer:

  1. Asset Transfer: Jennifer transfers her consulting business to DST before selling it.


  1. Trust Sale: The DST sells the business and receives the sale proceeds.


  1. Deferred Payouts: Jennifer receives installment payments from the DST over time, spreading out the recognition of capital gains and deferring the tax liability.

Tax Impact with DST:

  1. Scenario Overview:
    • Capital Gain: $1,000,000
    • Annual Income: $400,000
    • Federal Tax Rate (Proposed 2025): 39.6% + 5% NIIT
    • California Tax Rate: 13.3%


  1. Deferred Sales Trust Setup:
    • Assume Jennifer opts for installment payments of $100,000 per year over 10 years.


  1. Annual Tax Impact with DST:
    • Federal Capital Gains Tax (Installment Payment):
      Annual Installment: $100,000
      Federal Capital Gains Rate (Proposed 2025): 44.6%
      Federal Tax (44.6%): $44,600 per year
    • California Capital Gains Tax (Installment Payment):
      Annual Installment: $100,000
      California Capital Gains Rate: 13.3%
      California Tax (13.3%): $13,300 per year

Total Annual Tax Bill with DST: $44,600 (Federal) + $13,300 (California) = $57,900 per year

  1. Total Tax Over 10 Years with DST:
    • Federal Capital Gains Tax (44.6%):
      Total Federal Tax: $44,600 x 10 years = $446,000
    • California Capital Gains Tax (13.3%):
      Total California Tax: $13,300 x 10 years = $133,000

Total Tax Over 10 Years with DST: $446,000 (Federal) + $133,000 (California) = $579,000

Immediate Tax Impact Without DST (2025 Proposed):

  1. Federal Capital Gains Tax (44.6%):
    Capital Gain: $1,000,000
    Federal Tax (44.6%): $446,000


  1. California Capital Gains Tax (13.3%):
    Capital Gain: $1,000,000
    California Tax (13.3%): $133,000

Total Tax Without DST: $446,000 (Federal) + $133,000 (California) = $579,000

Conclusion and Planning Opportunity:

  • By using a Deferred Sales Trust (DST), Jennifer defers her tax liability, ensuring a more favorable financial outcome.
  • Though the overall tax burden remains similar, the DST allows Jennifer to maintain liquidity by spreading out the payments over 10 years, enabling her to reinvest the proceeds and reduce the immediate impact on her wealth.

Benefit of DST: By spreading the tax over ten years, Jennifer maintains liquidity and can reinvest the proceeds, potentially reducing the overall impact on her wealth.

Conclusion and Planning Opportunity:

By accelerating her sale to 2024, Jennifer can save $208,000 in federal taxes, ensuring she takes advantage of the current capital gains tax rates. Furthermore, using a Deferred Sales Trust allows her to defer her tax liability, providing liquidity and a more favorable long-term financial outcome.


2. Estate and Gift Tax Exemption Changes

Current 2024 Exemption:

  • Estate and Gift Tax Exemption: As of 2024, the federal estate and gift tax exemption is set at $12.92 million per individual. This high threshold allows significant wealth to be transferred either during one's lifetime or as part of an estate without incurring federal estate or gift taxes.

Proposed Changes in the Green Book:

  • Estate and Gift Tax Exemption Reduction: The Biden Administration's Green Book proposes to roll back the estate and gift tax exemption to pre-Tax Cuts and Jobs Act (TCJA) levels. This adjustment would decrease the exemption to approximately $6.85 million per individual, nearly halving the current amount available in 2024.
  • Rationale: This change is intended to increase tax revenues from higher net worth individuals, reflecting a shift towards more progressive tax policies targeting wealth accumulation.

Impact of Proposed Changes:

  • Immediate Reduction in Exemption Amount: If adopted, individuals planning large transfers would face a reduced threshold by over $6 million, potentially leading to increased estate and gift taxes upon death or when gifts are made.
  • Planning Challenges: Those with estates valued close to or above the new proposed exemption limits may need to accelerate their gifting strategies to take advantage of the current higher exemption limits before the proposed changes take effect.

Actionable Tip:
Make significant gifts to family members or trusts in 2024 while the current exemption of $12.92 million per individual is still available.

Mistake to Avoid:
Don't ignore the implications of the step-up in basis elimination. Without it, inherited property may face significant capital gains taxes when sold.

California Case Law/Statutes:
In California, the Estate and Gift Tax follows federal rules. The key statute, California Probate Code § 20100, will enforce these proposed changes.

Robert, a wealthy business owner, considers gifting his estate to a trust in 2024. He benefits by locking in the higher exemption while avoiding higher estate taxes post-2025.

Using Grantor Trusts and PPLI for Better Estate Planning Results

To minimize the impact of these proposed changes, Robert can use grantor trusts and Private Placement Life Insurance (PPLI) policies to reduce estate taxes and preserve wealth.

1. Grantor Trust:

  • Robert establishes a grantor trust and funds it with $12.92 million in assets before the proposed exemption reduction in 2025.
  • The trust allows the assets to grow outside of his estate, utilizing the current higher estate tax exemption.
  • By gifting assets to the trust in 2024, Robert can avoid future estate tax increases and benefit from the current exemption levels.

2. Private Placement Life Insurance (PPLI):

  • Robert invests the grantor trust's assets in a PPLI policy, providing tax-deferred growth and an income-tax-free death benefit to his heirs.
  • PPLI allows for investment flexibility and can offer additional protection against future tax hikes.
  • The assets in the policy are not subject to estate tax upon Robert's death.

Tax Impact with Grantor Trust and PPLI:

  • Estate Value: $20 million
  • Grantor Trust Gift: $12.92 million in 2024
  • Remaining Estate Subject to Tax: $7.08 million
  • Proposed Exemption Reduction (2025): $6.85 million

Estate Tax Calculation:

  • Excess Estate Value Over Exemption (2025): $7.08 million - $6.85 million = $230,000
  • Federal Estate Tax Rate: 40%
  • Federal Estate Tax Liability: $230,000 x 40% = $92,000

Tax Reduction Achieved:

  • By gifting assets to a grantor trust in 2024, Robert reduces his taxable estate by $12.92 million, effectively avoiding millions in estate taxes.
  • The PPLI policy allows for further tax savings and provides a tax-free death benefit to his heirs.

Conclusion and Planning Opportunity:

By utilizing a grantor trust and Private Placement Life Insurance (PPLI), Robert locks in the current higher exemption while reducing his estate tax liability post-2025. This strategy ensures a better financial outcome for his estate and heirs.


3. Capital Gains Rates and Step-Up in Basis

Key Changes:

  • Top Capital Gains Rate Increase: For those earning over $1 million, the Green Book proposes increasing the long-term capital gains rate to 39.6%.


  • Elimination of Step-Up in Basis: Taxing unrealized gains at death for gains exceeding $5 million per individual.

Actionable Tip:
Diversify your portfolio and consider tax-loss harvesting to offset gains with losses. Planning your capital gains and holding periods can reduce taxable income.

Mistake to Avoid:
Don't ignore capital gains planning. Selling assets without considering tax impacts can lead to excessive tax bills.

California Case Law/Statutes:
California taxes capital gains as regular income, compounding the potential tax liability.

Maria, with a taxable income exceeding $1 million, plans to sell a property in 2025. However, she accelerates the sale to 2024, ensuring a 20% tax rate rather than 39.6%.


4. Other Tax Proposals Affecting Individual Wealth

Key Changes:

  • Net Investment Income Tax Increase: Increase the NIIT and additional Medicare tax rate from 3.8% to 5% for individuals earning over $400,000.


  • Pass-Through Business Income Changes: All pass-through business income above $400,000 subject to either NIIT or Medicare tax.

Actionable Tip:
Evaluate your business structure. Switching to a C-Corp may offer tax benefits under the proposed changes.

Mistake to Avoid:
Don't miss reviewing your retirement accounts and passive investments. The increased NIIT could significantly impact these income streams.

California Case Law/Statutes:
California imposes a separate 1.5% tax on S-Corps, making pass-through entities less advantageous compared to other states.

John, a partner in a successful consulting firm, decides to convert to a C-Corp in 2024, benefiting from a flat 21% rate rather than increased pass-through taxes.

Conclusion and Call to Action

Navigating the complexities of the proposed changes in President Biden's Green Book requires expert advice and strategic planning. The Law Office of James Burns, with over 24 years of experience, specializes in wealth management and estate planning. Don't wait until it's too late—contact James Burns today at (949) 305-8642 or visit to ensure that your wealth is protected.

About the Author

James Burns

Estate Planning, Asset Protection, Business and Real Estate Transactions, nutraceutical Law and franchising:


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