For the 99.5% Act
Proposed Estate and Gift Tax Reform
A proposed estate and gift tax reform was brought before the Senate on Thursday, March 25th, by Democratic Senators Sanders, Gillibrand, Reed, and Van Hollen under the title, “For the 99.5% Act.” A similar bill is being brought to the House by Representative Gomez. While this legislation has a long way to go, the current proposal would have HUGE – I don’t think I can emphasize this enough – HUGE impact on high-net-worth families. Especially, if you just let this year go by and do not take action.
The bill is called the “For the 99.5% Act” to suggest that only 0.5% of the population is affected. However, that is just not true as its effects trickle down to your heirs (children, grandchildren, great-grandchildren, etc.). They will get less and your new heir – the Federal government – will get more.
Key Provisions of the Legislation
Reducing the estate exemption from $11.7 million to $3.5 million per person. It is a use it or lose it situation.
Reducing lifetime gift exemption from $11.7 million to $1 million.
Raising estate tax rates from 40% to 45% on the first $10 million, 50% on the next $40 million to as high as 65%.
Losing valuation discounts for non-business assets and entities.
Losing a common estate planning tool called “Defective Grantor Trusts” which allow the Grantor to pay taxes, but the Trust is moved outside the estate. This will be gone.
Losing most of the benefits of Grantor Retained Annuity Trusts (GRATs) and “Zeroed-out GRATs.” GRATs would now have a 10-year minimum term and a minimum gift consideration.
Taxing long-term trusts after 50 years (eliminating very long-term tax-free transfers).
Limiting annual gifting (the $15,000 per year per recipient) to $30,000 per year per donor! (Now you really are going to have to pick your favorite grandchild!)
You Have Time, But Act Fast!
Not only will the taxation be more intense, but many of the common estate strategies will no longer be an option.
The good news is that the proposed implementation date is January 1, 2022, so there is some time to respond. And, it appears that structures put in place before then will be grandfathered in.
We anticipate that the availability of attorneys and advisors will be very limited, as others try to get their planning in before 2021. So, now is the time to start planning. It is unclear at this point whether this bill will pass in Congress, but it should be noted that others like it have been introduced and there will likely be a significant change in estate planning. Be prepared! What are your options? Each depends on your situation as well as your vision and values.
If you are going to leave all to charity when you pass, then you don’t need to worry, as no new legislation was proposed regarding charitable gifts from estates.
If you plan on leaving part or all of your estate to your surviving spouse or descendants, and you have an estate of over $3.5 million per person now, or expect to in the future, you need to start exploring your options. If not, the US Government may become your biggest beneficiary!
Whatever your goals are for the succession of your estate, you should act now. If you need help, give us a call at 832-500-3101 or schedule a free consultation with us.
