Anticipating Potential Changes with Estate Planning

Senator Bernie Sanders recently introduced the “99.5% Act”, which is focused on the assets of the top 0.5% of wealthy Americans. This marks the first legislation introduced following President Joe Biden’s coming into office that would result in the lowering of the federal estate tax exemption. For many people interested in passing on assets to loved ones, it’s critical to understand the nature of these changes.


Changes Introduced by the Bill


The bill would lead to several critical changes in many of the country’s federal tax provisions, which include:


  • Increasing 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 excess value over $50 million, and 65% for the excess value over $1 billion 
  • Reducing the United States federal estate tax exemption to $3.5 million for citizens and domiciles of the country
  • Reducing the United States federal tax exemption to $1 million for citizens and domiciles of the country with an effective date for any gift made after December 31, 2021
  • For individuals who pass away after December31 31, 2021 as well as for gifts made after December 31, 2021, several conditions will occur. One, the disallowance of a basis step up on death for assets held through a grantor trust will occur even if assets are not included in the grantor’s gross estate. Two, grantor retained annuity trusts will be required to have a minimum 10-year term and a 25% minimum value for the remainder interest. Additionally, the elimination or reduction of valuable discounts for transfers of interests in entities like family limited partnerships will also occur. 
  • Restrict the ability to create dynastic trusts that are exempt from generation-skipping transfer taxes if the trust is more than 50 years old.
  • Distribution to beneficiaries from grantor trusts must be subject to U.S. federal gift taxes. 
  • Limit the annual gift tax exclusion up to no more than $20,000 per donor for certain types of transfers including transfers to trusts. 


The Impact of the Bill


It remains uncertain whether the legislation will gain any traction in Congress. With the Democrats in control of Congress, many people believe that a chance exists that the reduction of federal estate tax exemptions could occur. The bill, however, does come after the introduction of other legislation, referred to as the “Ultra-Millionaire Tax”, which proposes a new federal wealth tax. If any of this legislation is passed, there will likely be a substantial impact on the succession plan strategies utilized to reduce federal transfers for high net worth individuals. 


Obtain the Assistance of an Experienced Estate Planning Lawyer


The estate planning process is full of challenges. One of the best things to do to make sure that your estate plan is capable of achieving your goals is to obtain the assistance of an experienced estate planning attorney. Contact Ettinger Law Firm today to schedule a free case evaluation. 

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