In March 2021, Bernie Sanders introduced legislation to tax the fortunes of the top 0.5% of Americans. What do these possible tax law changes mean for you? Here is a summary of what he is proposing to change.
Keep in mind, these are proposed tax law changes to the existing laws. Meaning, they have not been signed into law…yet. But, with Democrats controlling Congress, many of these changes, which are based on President Biden’s proposals during his 2020 election campaign, may become reality before year end.
Federal Estate Tax Law Change
| Existing Law Set to Expire in 2025 | Proposed New Law |
| Each person can pass $11.7 million at death without incurring taxes | REDUCTION: Each person can pass $3.5 million at death without incurring taxes |
| Introduces a graduated Federal Estate Tax system based on the value of the Estate:
· 18% tax on $0 to $10,000 value over $11.7 million · 20% tax on $10,001 to $20,000 value over $11.7 million · 22% tax on $20,001 to $40,000 value over $11.7 million · 24% tax on $40,001 to $60,000 value over $11.7 million · 26% tax on $60,001 to $80,000 value over $11.7 million · 28% tax on $80,001 to $100,000 value over $11.7 million · 30% tax on $100,001 to $150,000 value over $11.7 million · 32% tax on $150,001 to $250,000 value over $11.7 million · 34% tax on $250,001 to $500,000 value over $11.7 million · 37% tax on $500,001 to $750,000 value over $11.7 million · 39% tax on $750,001 to $1 million value over $11.7 million · 40% tax on anything over $1 million value over $11.7 million |
Introduces a graduated Federal Estate Tax system based on the value of the Estate:
· 45% tax on value over $3.5 million · 50% tax on value over $10 million · 55% tax on value over $50 million · 65% tax on value over $1 billion
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The new law changes would also require inclusion of certain grantor trusts including irrevocable life insurance trusts(ILITs) in a grantor’s Federal taxable estate and triggers a gift of the entire value of the trust if grantor trust status is revoked during the grantor’s lifetime.
Federal Gift Tax Law Change
| Existing Law Set to Expire in 2025 | Proposed New Law |
| Each person can pass $11.7 million as a gift during lifetime without incurring taxes | REDUCTION: Each person can pass $1 million as a gift during lifetime without incurring taxes |
| Annual gift tax exclusion at $15,000 per person, without limitations as to types of transfers. | Limits the annual Gift Tax exclusion for certain transfers |
| Minority interest discounts allowable. | Eliminates minority interest discounts and lack of marketability discounts for an entity in which the transferor, transferee, and members of their families either control or own a majority ownership of the entity |
Trusts
This requires inclusion of certain grantor trusts including irrevocable life insurance trusts (ILITs) in a grantor’s Federal taxable estate and triggers a gift of the entire value of the trust if grantor trust status is revoked during the grantor’s lifetime
It also limits the creation of tax-exempt generation-skipping trusts, or dynasty trusts, if the trust term is greater than 50-years. It will essentially end dynasty and heritage trust planning.
Requires a 10-year minimum trust term for grantor retained annuity trusts (GRATs) and limits the maximum trust term to the life expectancy of the annuitant plus 10-years.
Requires that GRATs have a remainder interest of the greater of (i) 25% of the amount contributed to the trust, or (ii) $500,000.
If passed, some or all of these law changes could have significant impact on your estate. We recommend you review your current estate plan.
