For the 99.5% Act Summary

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The information below is a summary of the proposed estate law changes included in Senator Bernie Sanders’ For the 99.5% Act. This information is accurate as of May 2021. We will continue to monitor these changes as they progress through Congress and will provide updates as they become available.

Proposed Changes Effective in 2022

  • Reduction of the estate tax exemption to $3.5 million per person
  • Reduction of the gift exemption to $1 million per person
  • Reduction of the generation-skipping transfer (GST) tax exemption to $3.5 million per person
  • Introduction of tiered estate tax rates
    • 45% on estates over $3.5 million up to $10 million
    • 50% on estates between $10 million and $50 million
    • 55% on estates between $50 million and $1 billion
    • 65% on estates over $1 billion
  • Limitation on annual exclusion gifting to a total of $30,000 per donor
    • This would apply to gifts made to irrevocable trusts, and to gifts of interests in certain pass-through entities

Proposed Changes Effective in 2021 (or as of the date legislation is enacted)

  • Valuation discounts will be limited to business assets
    • Some passive assets may still allow valuation discounts, such as interests in commercial real estate for material participants
    • This would apply only to transactions occurring after the date the legislation is passed
  • Changes to Grantor Retained Annuity Trusts (GRATs)
    • Zeroed out GRATs will no longer be allowed
    • Minimum term extended to 10 years, with a maximum term lasting until the creator’s life expectancy
    • Limitations on the annuity payments (likely to be a maximum of 75% of the fair market value of the assets placed into the GRAT 
  • Changes to Intentionally Defective Grantor Trusts (IDGTs)
    • Any portion of the trust that results from the sale of assets to that trust are includable in the grantor’s estate
    • Distributions to beneficiaries of assets purchased by the trust will qualify as gifts
    • If grantor powers are ‘turned off’, a gift will be deemed to have been made to the trust’s beneficiaries
    • Only the amount of the original gift is excludable from the grantor’s estate; appreciation on the gift is includable in the grantor’s estate
  • Generation-Skipping Transfer (GST) Tax Exemption
    •  Distributions made from any trust that are made 50 years or more after the creation of that trust will not be exempt from the GST tax, regardless of the state in which the trust is created
    • Existing GST Exempt Trusts will become subject to GST tax 50 years after the law is enacted
    • Decanting a trust will not result in the resetting of the 50-year clock; the tax-exempt status of the trust will still expire 50 years after the creation of the initial trust
  • Annual Exclusion Gifting
    • Crummey Provisions, which allow gifts to Irrevocable Trusts to currently qualify as present interest gifts rather than future interest gifts (and therefore can fall under annual exclusion gifting) may be eliminated

Potential Action Items

  • High net worth families should consider using as much of their lifetime gift, estate and GST tax exemptions as is reasonable in 2021
  • Families considering complex estate planning strategies with trusts should aim to complete the creation and funding of those trusts as soon as possible
    • This includes GRATs, IDGTs, Family LLCs or LPs and gifts to Irrevocable Trusts
  • Families interested in utilizing the GST tax exemption should consider adding language to their estate planning documents to create those trusts at death, rather than creating them during life
    • This will allow the 50-year clock to begin at the grantor’s death, thereby maximizing the possibility of those assets avoiding taxation in their children’s estates

This document contains general information, opinions and market commentary and is only a summary of certain issues and events that we believe might be of interest generally. Nothing in this document is intended to provide, and you should not rely on it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any tax or investment or wealth management strategy, and you should not make any decisions based on the information in this document. Recipients should consult their personal tax and legal professionals regarding their own specific situations. While we believe the information in this email is reliable, we do not make any representation or warranty concerning the accuracy of any data in this email and we disclaim any liability arising out of your use of, or reliance on, such information. This document speaks only as of the date indicated. The information and opinions in this document are subject to change without notice, and we do not undertake responsibility to update any information herein or advise you of any change in such information in the future. Portions of this email constitute “forward-looking statements” and are subject to a number of significant risks and uncertainties. Any such forward-looking statements should not be relied upon as predictions of future events or results.

Posted By: Stephanie d'Ippolito, CFP®

Stephanie d’Ippolito, CFP®, is our Managing Director of Financial Planning. She is passionate about helping people and believes that financial planning can be a valuable tool for clients to understand and solve their unique financial problems. She lives in Seattle with her husband and two dogs, Toby and Thurman.