Potential estate and gift tax changes
Tax & AccountingJune 03, 2021

Estate and Gift Tax Law Changes Could Lower Exclusions, Increase Rates

By: CCH AnswerConnect Editorial

Estate and Gift Tax Law Changes Could Lower Exclusions, Increase Rates

An esteemed panel of estate planning experts examined proposed estate and gift tax legislation that could impact a wide range of clients. The webinar, Sanders and Other Tax Proposals: What They Mean and What to Advise Clients to do Now, was presented on April 6, 2021.

What Estate Tax Changes Are Possible?

The panel discussed two main sources for potential legislative change: 

  • Estate and gift tax proposals, including the “For the 99.5% Act” from 2021 and the “For the 99.8% Act” from 2019, both submitted by Sen. Bernie Sanders and Rep. Jimmy Gomez; and
  • The Sensible Taxation and Equity Promotion (STEP) Act sponsored by Sen. Chris Van Hollen, which would eliminate the stepped-up basis on inherited assets and tax unrealized capital gains at the death of the original owner.

Both of the estate and gift tax proposals make the following recommendations for the combined estate and gift tax exclusion, which is currently $11.7 million:

  1. Provide a separate gift tax exclusion of $1 million, not indexed for inflation.
  2. Provide a separate estate tax exclusion of $3.5 million, indexed for inflation.
  3. Retain the portability of the exclusion amount.

The estate and gift tax proposals would also impose an initial tax rate of 45%. Amounts over $1 billion would be subject to a top rate of 77% in the For the 99.8% Act and 65% in the For the 99.5% Act.

The estate and gift tax proposals would also make the following changes:

  • Increase the special use valuation amount to $3 million
  • Increase the qualified conservation easement exclusion to $2 million and increase the maximum percent value of the land that can be excluded to 60%
  • Clarify grantor trust provisions
  • Change some valuation rules
  • Retain the per donee limit on annual gifts and impose a modified per donor limit on the gift tax annual exclusion amount for certain transfers
  • Restrict grantor retained annuity trusts (GRATs)
  • Change the law applicable to generation-skipping transfer (GST) tax-exempt trusts.

The presenters also noted that the estate and gift tax proposals are not coming from the extreme liberal wing of the party. In fact, many of the proposals were published in President Obama’s final budget in 2016.

What Can Clients Do Now?

The experts provided practical advice on what clients and practitioners can do now to prepare for a much-changed estate planning world. One of the most important pieces of advice is to educate clients now. Waiting until the end of the year or after any law is passed may be too late.

This is because the exclusion and rate structure detailed in the “For the 99.5% Act” would be effective for deaths occurring, and GSTs and gifts made, after December 31, 2021.

The STEP Act would have an effective date of January 1, 2021.

By: Alicia C. Ernst, J.D.

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CCH AnswerConnect Editorial

Comprising of industry’s most trusted experts, the Wolters Kluwer CCH AnswerConnect Editorial Staff are knowledgeable and highly qualified to analyze and offer guidance on the latest, important tax topics. They ensure every topic is thoroughly researched and meticulously broken down so you receive the most up to date and accurate information available. Read more of their insights on CCH AnswerConnect.

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