Proposed Estate/Gift Tax Changes That Will Impact Our Clients

Each new administration since President Jimmy Carter has passed tax legislation within the first year of taking office, and without a divided Congress, it is likely that more clients will face the prospect of a taxable estate under the Biden administration. There are two proposed legislations that we are closely monitoring, as they could have a significant impact on your estate plan.

Who will this impact?

  • Individuals who have more than $3.5 million
  • Married couples who have more than $7 million
  • Individuals/couples who make significant lifetime gifts or annual gifts
  • Individuals with certain Irrevocable Trusts (Grantor Trusts)
  • Individuals or couples with more than $1 million in unrealized capital gains

For the 99.5% Act
On March 25th, Senators Bernie Sanders (Vermont) and Sheldon Whitehouse (Rhode Island) introduced the For the 99.5% Act. If signed into law, this Act could have a lasting impact on existing and future estate plans as it will change some longstanding estate and gift tax rates. The Act targets the top 0.05% wealthiest Americans and would lower the federal estate tax exemption. As such, these changes will impact the majority of our clients.  As written, the Act would notably:

  • Reduce the US federal estate tax exemption from $11.7 million to $3.5 million per person ($7 million for a married couple)
  • Reduce the US federal gift tax exemption from $11.7 million to $1 million
  • Increase the progressive federal gift and estate tax rate to 45% for the excess value over $3.5 million, 50% for the excess value over $10 million, 55% for the excess value over $50 million, and 65% for the excess value over $1 billion.
  • Annual gift tax exclusion reduced to $10,000/person/year, capped at $20,000 in total annual gifts

The above changes would be effective for decedents dying after December 31, 2021, and for gifts made after December 31, 2021.

Other changes include:

  • Special use valuation reduction cap increased to $3 million
  • Conservation easement deduction capped at $2 million
  • No more marketability discounts on passive assets
  • No more minority interest discounts for interests in family-controlled entities
  • Grantor Retained Annuity Trusts (GRAT) would require a minimum of 10-year term and a 25% minimum deemed gift when you fund a GRAT
  • New §2901 to cause grantor trusts to be included in the federal gross estate
  • 50-year federal Rule Against Perpetuities for existing GST trusts; no grandfathering

Senator Chris Van Hollen (D-MD) introduced the Sensible Taxation and Equity Promotion (STEP) Act, which, if enacted, will result in taxing unrealized capital gains when the asset is transferred, either during lifetime as a gift or at death. The STEP Act states:

  • For transfers at death, the first $1 million of gain is excluded
  • For lifetime gifts, $100,000 of cumulative gain is excluded
  • Amounts above the exclusions will be subject to transfer tax
  • Gains on personal residences are exempt up to $250,000 (or $500,000 for a married couple)
  • For illiquid businesses and farms, the tax could be paid over a 15-year period (with interest!)

These changes will prevent the use of certain trusts that allow you to transfer assets out of your estate yet trigger no income tax if you sell the assets to the trust (revocable or living trusts excluded).

It is uncertain whether these laws will pass, and if so in what form.  But we are confident some change will occur that is going to impact many of our clients. A thorough reevaluation of your estate plan in 2021 may be necessary to ensure your assets and legacy are protected.

Attend a complimentary webinar to learn how you may be impacted

To help our clients better understand the potential impact of the proposed tax changes on their estate plans, we are presenting a complimentary CLIENT ONLY webinar, “How Recently Proposed Estate/Gift Tax Law Changes Impact YOU,” on Thursday, April 29th from 12-1pm.

If you, as a client, are interested in attending the webinar, please contact me or check your inbox for a formal invite to follow. The one-hour webinar will be 30 minutes of presentation and 30 minutes of Q&A, and will help clients assess how these changes will impact them directly. We will also record the webinar for clients that are unable to attend live.

As the legislation progresses, we will continue to keep you posted.