Tax Planning

Sanders’ proposed tax legislation would dramatically have an effect on property tax planning

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.

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