May 12, 2021
Senator Sanders has proposed the "For the 99.5 Percent Act" which would increase estate, gift and generation-skipping transfer tax rates, reduce estate, gift and generation-skipping transfer tax exemptions and significantly impact current estate planning strategies utilized to reduce the estate tax bite. Senator Warren has proposed a wealth tax imposing a 2% annual tax on net worth in excess of $50 million and 3% on net worth exceeding $1 billion. Senator Van Hollen has proposed the Sensible Taxation and Equity Promotion (STEP) Act which would eliminate the step-up in basis that currently applies on death by taxing unrealized capital gains when heirs inherit appreciated property with an exclusion of up to $1 million in gains. These proposals are in addition to the Biden administration’s American Jobs Plan and American Families Plan increasing corporate and individual income tax and capital gains tax rates.
The Sanders bill proposes to make the most sweeping changes in the estate, gift and generation-skipping transfer tax rules since 1986 by reducing the lifetime gift exemption to $1 million and the estate and generation-skipping transfer tax exemptions to $3,500,000 (all of which are currently $11.7 million). The proposal would also increase the estate, gift and generation-skipping transfer tax rate from the current 40% to a progressive range starting at 45% and increasing to 65% for transfers in excess of $1 billion. Some of the other important proposals will eliminate or curtail the use of GRATs, eliminate valuation discounts for lack of control or lack of marketability for non-business assets, eliminate the benefits of “intentionally defective grantor trusts” and limit the benefit of “dynasty” trusts by imposing a wealth transfer tax on such trusts every 50 years.
If these proposals are incorporated in a Senate budget reconciliation bill it would only require 51 votes to pass. However, if a reconciliation bill is not possible, a 60 vote supermajority would be required. At this writing it is becoming likely that legislation affecting estate and gift taxes will not be introduced much before this summer and may not be effective until next year. In addition, many of the proposals will only impact trusts created, or transfers made, after passage. Until then, it is still possible to avail oneself of the strategies discussed in the article here.
Any individual with a net worth expected to exceed $3,500,000 at death (or married couples with an aggregate net worth expected to exceed $7 million at death) should explore what immediate steps they need to take to avoid significant estate tax upon death. The window of opportunity may be closing soon. We are available to work with you and your financial advisor or CPA to analyze the planning strategies appropriate to your particular circumstances and your particular goals.