Historical Changes coming to the Estate, Gift and GST Taxes
As of March 25, 2021, a bill was introduced on the Senate floor (For the 99.5% ACT) that would drastically overhaul estate tax rates, reduce gifts and GST exemptions, and would possibly include trust assets in taxable estates. The following is a summary of some of the proposed provisions: The current estate tax exemption is[...]
As of March 25, 2021, a bill was introduced on the Senate floor (For the 99.5% ACT) that would drastically overhaul estate tax rates, reduce gifts and GST exemptions, and would possibly include trust assets in taxable estates.
The following is a summary of some of the proposed provisions:
- The current estate tax exemption is $11,700,000 per individual ($23,400,000 for married couples). This would be reduced to $3,500,000 ($7,000,000 for married).
- Tax rate increases – currently, the maximum gift, estate, and generation skipping tax rate is 40%. The Act changes the rate structure so that estates over $3,500,000 but under $10,000,000 will be taxed at 45%; over $10,000,000 up to $50,000,000 will be taxed at 50%; over $50,000,000 but under $1,000,000,000 will be taxed at 55%; and over $1,000,000,000 will be taxed at 65%.
- Elimination of what are commonly referred to as “Defective Grantor Trusts” by adding a provision to the Internal Revenue Code stating that a trust funded by a grantor after the date of the legislation is considered owned by the grantor for both income and estate tax purposes.
- Restrictions on funding of new GRATs (Grantor Retained Annuity Trusts), imposing a minimum term of 10 years and minimum gifts upon funding.
- Limitations on “dynastic” trusts that are intended to go on for multiple generations by requiring the trust to terminate for estate tax purposes after 50 years.
- Changing the annual gifting exemption (currently $15,000 per donee per year) to $10,000 per donee and adding an annual cumulative limitation per donor of two times the annual limitation. Limitations are also put in place when making gifts to trusts, family entities, or other entities where the assets can’t be immediately liquidated.
- Elimination of valuation discounts for non-business assets, such as family-owned limited liability companies funded with investment assets.
While we don’t know what congress will end up passing, the consensus is that significant changes are coming. We strongly suggest that you consult with your estate planning professionals to perform a thorough review of your estate and trusts.