President Joe Biden wants to raise taxes on inheritances to help fund his lofty infrastructure plans.

The proposals call for taxing capital gains on inherited property at death, treating the transfer like a sale. Heirs may exclude the first $1 million of gains ($2.5 million for married couples).

This new tax hike is separate from estate taxes on transfers of more than $11.7 million, unchanged since former President Donald Trump’s 2017 tax overhaul.

The administration is also calling to hike the top capital gains tax rate to 39.6%. The highest earners may pay as much as 43.4% on long-term capital gains, including the 3.8% tax for Obamacare.

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“It’s flipping estate plans upside down,” said Dan Herron, a San Luis Obispo, California-based certified financial planner and certified public accountant with Elemental Wealth Advisors.

Currently, heirs defer taxes on inherited property until they sell it. They also receive a so-called step up in basis, adjusting the property’s purchase price to the value on the date of death.

But if Biden’s plans go through, heirs may soon face hefty tax bills at death. 

If their inherited property growth exceeds $1 million, they may owe as much as 43.4% long-term capital gains taxes, not including state or local levies.

“It’s probably the No. 1 risk our clients are facing right now,” said Rob Hazard, an estate planning attorney and certified public accountant at Gullett Sanford Robinson & Martin in Nashville, Tennessee. 

As Congress wrestles over Biden’s agenda, some advisors have been proactive with clients, exploring ways to lessen the possible impact. If taxes rise, some clients may buy more life insurance to cover the bills, said Herron. 

Clients with more than $11.7 million, the estate tax exemption for 2021, may buy a so-called irrevocable life insurance trust, using the policy to pay taxes at death. But those with fewer assets may have life insurance without a trust, he said. 

The biggest perk of using life insurance for estate planning may be peace of mind, Herron said. 

Clients often feel a sense of relief knowing their heirs will receive tax-free proceeds to cover necessary expenses — such as levies, funeral costs, administrative fees or unpaid debt — when they are no longer around.

“I think insurance is going to continue to be a tool used by our wealthy clients,” Hazard said.

While it may be too soon for sweeping estate plan changes, those impacted may want to get property appraisals to gauge their taxable growth, Herron said. 

After receiving estimates, clients may have a better idea about their possible capital gains taxes, revealing how much life insurance they may need for those bills.

For example, a quote for a 15-year, $5 million term life insurance policy for a healthy, nonsmoking 65-year-old woman in Nashville may start around $1,500 per month, according to Quotacy, an online life insurance brokerage.

However, a so-called permanent policy, offering coverage for life, may be significantly more expensive. The cost varies by location, family history, medical exam and other factors.

Of course, some assets, such as family businesses, may be tougher to value, and if the laws change, there may be disputes over property appraisals, he said.

“We’re getting everything ready to go,” said Herron.

If Biden’s plans happen, clients may want to be ready to “pull the trigger” on their new estate plans, he said. 

Then there’s the risk of spending money on appraisals and Biden’s proposals fizzling out, Herron said. But it may be better than taking no action and getting a costly surprise later. 

Boosting life insurance may also be useful for businesses, particularly companies owning real estate, said Hazard. 

“Typically, there’s going to be quite a bit of appreciated value there,” he said.