The Coming Storm

Stormy sky with dramatic clouds at sunset as a thunderstorm approaches, much like the turbulent future of estate taxes. -GETTY

Yesterday, May 20, 2021, Senator Bernie Sanders (I-VT) introduced S. 994, the "For the 99.5 Percent Act," to "reinstate estate and generation-skipping taxes, and for other purposes.". This Act amends the Internal Revenue Code by increasing the gift and estate tax rates from 40% to a high of 65% and decreasing over the basic exclusion amount from $10 million, adjusted for inflation to now over $11.7 million, to $3.5 million with no adjustment for inflation . 

Up to $3.5 million                            No tax

$3.5 million to $10 Million             39%

$10 Million to $50 Million              50%

$50 Million to $1 Billion                 55%

Over $1 Billion                                65%

The Act also reduces the limitation for special use valuation under Code Sec. 2032A from $3 million to $750,000, adjusted for inflation. The bill also eliminates valuation discounts for some transfers of nonbusiness assets, imposes a minimum term limit of ten years for grantor retained annuity trusts (GRATs), and provide that current taxable gift on the remainder interest for a GRAT must be at least an amount equal to the greater of 25% of the trust assets or $500,000.

The Act  eliminates valuation discounts for some transfers of nonbusiness assets and would applies an inclusion ratio of one to any generation-skipping transfer trust that is longer than 50 years, and would impose a limit of two donees for annual exclusion gifts.

An Act is not law until it is signed by the President and much can happen between filing and his signature. What it does mean is that time is running out to use any of the estate tax exemption, discounts, and estate planning techniques targeted in the Act before the changes are final. So, if you have not already taken action, you should do so immediately. 

This also effects planning that has already been done in the past so I am expecting a storm of changes to try to minimize the taxes before and after the Act becomes law.