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Two New Bills May Change the Way You Approach Your Estate Planning Strategies


As with any new administration, tax code reform is usually one of the first items on the agenda. In this case, two new pieces of legislation were introduced to Congress around the end of Q1 2021 that would indicate that Democrat lawmakers are targeting high-net-worth individuals in a plan to not only reform the nation’s income tax system, but also the gift and estate tax systems.

The first bill, proposed by Maryland Senator Chris Van Hollen and known as the Sensible Taxation and Equity Promotion (STEP) Act, would directly impact estate planning strategies used to transfer wealth to future generations. Key points include:

  • Reducing the estate tax exemption from $11.7 million to $3.5 million
  • Reducing the gift tax exemption from $11.7 million to $1 million
  • Establishing new, progressive tax brackets, with rates ranging from 45% for estates between $3.5 million and $10 million, to 65% for taxable estates in excess of $1 billion
  • Allowing a $10,000 per donee annual gift tax exclusion subject to a $20,000 per donor cap however gifts of cash and other assets would still be under the current annual exclusion or $15,000 per donee and no cap
  • Prohibiting a step-up in bases for assets held in grantor trusts that are not included in the grantor’s gross estate
  • Impose limitations on valuation discounts when valuing certain family owned entities

The second bill, proposed by Senators Bernie Sanders and Sheldon Whitehouse and aptly named the For the 99.5% Act, looks to change, among other items, the federal estate and gift tax rate as well as lower the estate and gift tax exemption limits. Key points include:

  • Eliminating the step-up in basis at death and taxing the capital gains of unsold assets upon death. Current rules allow assets like stock and real estate to pass to heirs without capital gains tax on the appreciated value and at current market values instead of the decedent’s original cost
  • Allowing individuals to exclude up to $1 million in unrealized capital gains from being subject to tax
  • The ability to pay in installments over a 15-year period for illiquid assets like a farm or business
  • Continuing the exclusion of up to $500k for personal residences

What does this mean? Changes are coming, it is just a matter of when and exactly what they will be. You should move forward with your estate planning and contact your legal counsel and valuation professional to complete your plan.

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