A bill was introduced in the Senate to reduce estate, gift, and generation-skipping transfer tax exemption amounts and increase tax rates. The bill would also eliminate or reduce the tax benefits received from certain estate planning techniques.
Senator Bernie Sanders (I-VT) introduced Senate bill 994, also known as the “For the 99.5 Percent Act”, which would amend the Internal Revenue Code to increase the rates regarding taxes on the transfer of the taxable estate of decedents who are US citizens or residents.
For estates over the basic exclusion amount, the rate would be 39%. For estates over the basic exclusion amount and not over $10 million, the rate would be 45%. For estates over $10 million and not over $50 million, the rate would be 50%. For estates over $50 million and not over $1 billion, the rate would be 55%; and for estates over $1 billion, the rate would be 65%.
The bill would also reduce the basic exclusion amount, which for 2021 is $10,000,000, adjusted for inflation, to $3,500,000 for estates of decedents dying, and generation-skipping transfers and gifts made, after December 31, 2021. (The text of the bill does not include an annual inflation adjustment for the basic exclusion amount).
The bill would also eliminate a step-up in basis for certain grantor trusts, the assets of which are not includible in the grantor’s estate. This foregoing change would make clear that assets in an intentionally defective grantor trust (IDGT) would not receive a step-up in basis at the death of the grantor unless the assets were includible in the grantor’s estate.
Additionally, the bill would apply 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.
A bill was also introduced in the U.S. House (H.R. 2576) to amend the Internal Revenue Code “to reinstate estate and generation-skipping taxes, and for other purposes”, although text has not been received for this bill as of this date.
THE BOTTOM LINE
Under the proposed legislation, estate tax exemption levels would fall and rates would rise. It is important to remember that each bill has only been introduced and may have only a small chance of passage into law. However, the proposed legislation represents another indicator that revisions to the tax code will likely remain a Congressional priority.
If you should have questions or concerns regarding these issues, please contact Lin Law LLC at (920) 393-1190.