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For the 99.5 Percent Act

On March 25th, Senator Bernie Sanders introduced the “For the 99.5 Percent Act.” This proposal has the potential to represent a significant reduction in the gift and estate tax exemptions that are currently available. Families that were not previously subject to those taxes could now be impacted. If passed, the proposed enactment date is January 1, 2022, and proposes the following major changes to estate and gift taxes:

Estate and GST Tax Exemption:
  • Reduces to $3.5 million per person ($7 million per married couple), IS indexed for inflation. Previously, $11.7 million per person ($23.4 million per married couple).
Gift Tax Exemption:
  • Reduces to $1 million per person ($2 million per married couple), NOT indexed for inflation. Previously, $11.7 million per person ($23.4 million per married couple).
Estate & Gift Tax Rate:
  • Increases on a portion of a taxable Estate:

40%-45% - $3.5 million to $10 million

50% - $10 million to $50 million

55% - $50 million to $1 billion

65% - $1 billion & up

Qualifying GST Exempt Trusts:
  • Imposes a 50-year term limit on generation-skipping trusts (also known as dynastic trusts or GST trusts).
Annual Gift Tax Exclusion:
  • Reduces to $10,000 per-donee, plus adds an annual cumulative limitation per donor of two times ($20,000) the annual limitation. Previously, $15,000 per-donee.
Elimination of Valuation Discounts:
  • Eliminates marketability valuation discounts on passive assets and minority interest valuation discounts on family-controlled business entities.
Grantor Retained Annuity Trusts (GRAT):
  • Imposes a minimum term of 10 years and minimum gifts of 25% upon funding of the GRAT.
Code Section, IRC § 2901:
  • Imposes a gift tax or an estate tax on property owned by grantor trusts.

Includes:

Trusts created after the enactment date.

Existing trusts when new transfers are made (after the enactment date)

Upon termination of trust status during the grantor’s life or at death.

While it is important to note that the “For the 99.5 Percent Act” is only in the proposal stage, it could be a good indicator of the change of direction for the future of Estate Planning. Whether the mentioned legislation is put in place as of the date of signing, or effective as of January 1, 2022, as the proposal suggests, it provides an opportunity for families to take advantage of the still-elevated exemptions and other wealth transfer techniques that may be impacted by any future legislation.

We discussed many of these techniques in a webinar we co-hosted with Husch Blackwell, LLP on March 25th. You can view a recording of the webinar here.

If you have questions surrounding you or your family’s specific tax or planning situation, please feel free to reach out for a no-obligation consultation.

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