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For The 99.5% Act – Is Change a Coming for the Estate Planning World?

Jennifer J. Wioncek

On March 25, 2021, Senator Bernie Sanders introduced legislation called “For the 99.5% Act.” This bill is aimed at the fortunes of the top 0.5% of wealthy Americans. This is the first piece of legislation introduced following President Joe Biden’s coming into office that would lower the federal estate tax exemption. In summary, the bill would make the following important changes to many of the important U.S. federal transfer tax provisions:

  • Reduce the U.S. federal estate tax exemption to $3.5 million for U.S. citizens and U.S. domiciliaries (Note: There is no mention of the $60,000 exemption being reduced or eliminated for non-U.S. citizens and non-domiciliaries with U.S. sitused assets);
  • Reduce the U.S. federal gift tax exemption to $1 million for U.S. citizens and U.S. domiciliaries with an effective date for gifts made after December 31, 2021;
  • Increase the progressive federal gift and estate tax rate to 45% for the excess value over $3.5 million, 50% for the excess value over $10 million, 55% for the excess value over $50 million, and 65% for the excess value over $1 billion;

The effective dates for the 3 three foregoing changes will be for decedents dying after December 31, 2021, and for gifts made after December 31, 2021.

  • The disallowance of a basis step up on death for assets held through a grantor trust, if the assets are not included in the grantor’s gross estate at the time of death;
  • Grantor Retained Annuity Trusts will be required to have a minimum 10-year term and a 25% minimum value for the remainder interest;
  • Elimination or reduction of valuable discounts for transfers of interests in entities such as family limited partnerships that are not conducting an active trade or business;

The effective dates for the 3 three foregoing changes would be for transfers made after the date of enactment of the legislation.

  • Constrain the ability to create dynastic trusts that are exempt from generation-skipping transfer taxes, if the trust period is greater than 50 years;

The effective date for this provision will be on the date of enactment of the legislation.

  • Distributions to beneficiaries from a grantor trust will be generally subject to U.S. federal gift tax;

The effective date for this change would be for trusts created after the enactment of the legislation, or in relation to trusts created before the enactment of which contributions are made to such trust after the enactment of the legislation.

  • Sharply limit the annual gift tax exclusion up to no more than $20,000 per donor for certain types of transfers such as transfers to trusts.

The effective date for this change shall apply to any calendar year beginning after the date of the enactment of the legislation.

It is not clear yet if this new legislation will gain any traction in Congress. With a Democratically controlled Congress, many believe there is a chance that the reduction of the federal estate tax exemption could happen, particularly as this was a campaign item for the President. Some of the other items have been part of previously issued “Green Books” by the U.S. Treasury in some shape or form but never made their way to a piece of legislation. It should be noted that this bill does come off the heels of proposed legislation introduced by Senator Elizabeth Warren on March 1, 2021, to be called the “Ultra-Millionaire Tax” and proposing a new federal wealth tax. If any of the foregoing proposals should be passed, there will be a significant impact on many of the common succession planning techniques to reduce federal transfers for high net worth individuals. It will be important to monitor the progress of these proposals and be prepared.

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