On March 25, 2021, a proposed estate and gift tax bill was introduced. If passed as is, the bill will increase estate and gift taxes as well as reduce exemption limits. Here is a summary of relevant provisions:
- Reducing the estate tax exemption from $11.7MM per person to $3.5MM.
- Reducing the gift tax exemption from $11.7MM per person to $1MM.
- Change the gift and estate tax rate to:
- 45% for $3.5MM – $10MM
- 50% for $10MM – $50MM
- 55% for $50MM – $1B
- 65% for $1B and up.
- Elimination of valuation discounts for non-operating family owned business entities like family limited partnerships (see: Wealth Transfer: FLPs and Trusts).
- Include Grantor Trusts in the Grantor’s estate. This would essentially render insurance trusts and defective grantor trusts, which are used to shift appreciating property from the grantor’s estate, useless.
- Eliminate short term GRATS and requires a 10 year minimum term for GRATs (shorter GRAT periods are generally preferred, see: Wealth Transfer: Loans and GRATS).
- 50yr cap on deferral of Generation Skipping Transfer taxes, eliminating dynasty trusts in jurisdictions like Wyoming and Nevada w/o a rule against perpetuities.
- Reducing the annual gift exclusion to $10k per person ($20k for a married couple).
- Note: the step-up in basis would remain.
The proposal suggests a January 1, 2022 effective date.
Groundwork for planning in advance of proposed changes should begin sooner rather than later as it can take time to complete the planning, especially if attorneys, accountants and appraisers become overwhelmed by demand. Moreover, doing the groundwork is prudent regardless of current net worth and even if tax planning is not immediately needed.
Some of the groundwork that should be done includes: updating current balance sheet or net worth statements, identifying and classifying appreciating property, estimating future estate values, reviewing and documenting gifting history and filed Form 709s, reviewing wealth transfer goals, reviewing current estate plans, and identifying techniques best suited to meeting future wealth transfer goals.
We will keep an eye on the proposed changes and developments. In the meantime, we are available to discuss the implications of this proposed bill for your particular situation. Please feel free to reach out to us if you want to discuss further.
For questions or comments reach out to me by email.
Keith A. Pillers, JD, CFP®, CIMA®, CPWA®
Director of Wealth Management
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