Tax Proposals Could Alter Estate Planning Landscape

Every year there are numerous tax proposals. These proposals run the gamut. We start paying attention when there’s a change in power in Washington, D.C., especially when there’s not divided government.

Right now, Democrats control the House by a narrow margin and the Senate is evenly divided, with Vice President Harris able to cast a deciding vote if the chamber is split. So, while a tax change is certainly possible, it’s not at all certain.

A recent proposal by Senators Sanders (I-VT) and Whitehouse (D-RI), “For the 99.5% Act,” would dramatically alter the Estate Planning landscape. Here’s a summary of the Act from Senator Sanders. Here are some of the changes the Act would make:

  • Lower the amount that can be passed to $3.5 million at death, with only $1 million available during life. These amounts would not be inflation-adjusted. Today’s amount is $11.7 million and is inflation-adjusted. (However, even under current law, the exemption drops in half after 2025.)
  • Amounts in excess of the exemption are taxed at rates from 45% to 65%. The current rate is 40%. Amounts from $3.5 million to $10 million would be taxed at 45%, from $10 million to $50 million would be taxed at 50%, from $50 million to $1 billion would be taxed at 55%, and amounts in excess of $1 billion would be taxed at 65%.
  • Change the rules for Generation-Skipping Tax exemption so that assets cannot be left in a trust which avoids estate taxes for more than 50 years.
  • Change the rules for Grantor Retained Annuity Trusts so that they aren’t nearly as attractive as a way of transferring value to others.
  • Limit valuation discounts, such as minority discounts. Such discounts are often used to pass as much as possible with the least possible use of exemption or the least possible tax.

The Act might change considerably or might not pass at all. But, if it passes in its current form, it would dramatically alter Estate Planning. So, what can you do? I encourage you to plan under the current rules. For example, you could use the current, historically high exemption while it is available. You could use strategies to take advantage of discounting while they’re available.