Entrepreneurs and individuals with significant wealth should consider giving away assets before enacting new laws that could increase taxes on gifts, estates, and generation skips.
Such a bill was introduced by Senator Bernie Sanders on March 25, 2021. If enacted, the bill would increase inheritance and generational tax exemptions from the current $ 11.7 million per person ($ 23.4 million for a married couple) to $ 3.5 million per person ($ 7 million for a married couple).
The gift tax exemption would be reduced from the current $ 11.7 million per person to $ 1 million per person ($ 2 million for a married couple).
The tax rate would also increase from the current 40% to 45% to 65%, depending on the size of the estate.
While the chances of the draft law going into effect as drafted are highly unlikely, there is little doubt that a revenue hunt is pending and inheritance tax is in the mix. A Biden Infrastructure Bill could include measures that President Biden has advocated, such as: For example, lowering the inheritance tax exemption to $ 3.5 million, increasing the inheritance tax rate to 45%, and eliminating or reducing the availability of the “reinforced” base for assets upon death.
Other items in the Sanders bill could also add revenue while affecting a relatively narrow group of taxpayers. These include:
- Eliminate discounts due to lack of marketability and control over the value of certain types of family businesses.
- Significant change in the effectiveness of GRATs (Grantor Retained Annuity Trusts) by requiring a term of at least ten years and a gift value of at least 25% of the value of the assets contributed to the GRAT.
- Removing the “Grantor Trust” technique to allow grantors to pay income taxes on trust income without the assets they have transferred to the trust being included in their estates.
- A tax that skips generations is levied on trusts such as Dynasty Trusts that have a term of more than 50 years.
- Restriction of the “annual exclusion gifts” to two recipients per donor if the gifts go to a trust or are gifts of specific interests.
Customers who want to reduce their estate tax risk should seek advice on their situation as soon as possible.