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Sanders’ 99.5% Act Estate Tax Proposal

Recently, Bernie Sanders presented his proposed tax reform legislation, which outlines drastic changes to the estate and gift tax exemption. While it is our hope that this proposed law will not be enacted, it seems best to “plan for the worst and hope for the best,” given the unpredictable political climate, and the possible changes that may be made if a watered-down version of this potent proposed law passes. The good news is that the proposed reduction of the estate tax exemption amount from $11,700,000 to $3,500,000 would not occur until January 1, 2022.

The same timing applies for the proposed reduction of the gift tax allowance to only $1,000,000, which means that people will not be able to gift more than $1,000,000 after 2021 without paying gift tax.

Also, the proposed increase in the estate tax rate to 45% once a deceased person’s taxable estate exceeds $3,500,000, and 50% and higher when the amount subject to tax exceeds $10,000,000, will not apply until 2022.

In addition to the above exemption and tax changes, gifting of up to $15,000 per year per person will be limited to $30,000 per donor per year for gifts to irrevocable trusts or of interests in certain “flow-through entities” beginning in 2022.

The tougher news for many clients is that some of the primary tools and strategies that we have used in the past will not be available in the future, beginning upon the date that President Biden signs the bill into law if this occurs. Once that happens, we will not be able to fund or have assets sold to Irrevocable Trusts that can be disregarded for income tax purposes, and we will also not be able to use valuation discounts or Grantor Retained Annuity Trusts (GRATs) in most circumstances, although those arrangements put into place before the new law is passed will be grandfathered as long as they are not added to or altered after the law is passed, as presently written.

This is an important CALL TO ACTION for families having assets expected to exceed $3,500,000 per person to take a serious look at their present planning situation in order to determine whether to take immediate steps to avoid death taxes. In particular, clients who have irrevocable trusts may want to act without delay to extend any notes that may be owned by them to the longest period practical, and to sell assets that may go up in value, and exchanges for assets that may be more suitable to be owned by these trusts, given that exchanges and changes made after a new law is passed may not be possible.

We have been inundated with estate tax planning since the beginning of last year and are generally operating at capacity. If you wish to complete an estate tax plan that you have started with us or to further develop or act upon an estate tax planning structure you already have in place, please let us know immediately, and confirm that you can provide us with updated asset and entity information so that we can avoid any delays in putting whatever you would like to do into action before new law may pass. We will give first priority to clients who contact us without delay and have plans in place or in progress.

If your estate value is $3.5M or over, act now and don't wait!