Senator Bernie Sanders released his proposed estate and gift tax reform legislation on Thursday, March 25.  Senators Kirsten Gillibrand, Jack Reed and Chris Van Hollen co-sponsored this plan, and Representative Jimmy Gomez will reportedly introduce a version of the bill in the House of Representatives.  Only time will tell whether this Bill or some variation of it will become law, but if it does it will be to the displeasure of many Americans. 

Some of the major changes set forth in the proposed Bill are as follows:

  • Reduce the estate tax exclusion amount from the current $11,700,000 to $3,500,000 per person (it should be noted that the amount of the exclusion is scheduled to be reduced to $5,000,000, indexed for inflation, at the end of 2025, regardless of whether there is an earlier change to the estate and gift tax laws);
  • Increase of the top estate tax rate from a flat rate of 40% to 45% for estates from $3,500,000 to $10,000,000, 50% for estates from $10,000,000 to $50,000,000, 55% for the next $50,000,000 of taxable assets, and 65% on everything over that;
  • Limit lifetime taxable gifts to $1,000,000;
  • Reduce the amount of annual exclusion gifts from $15,000 to $10,000 per donee, and further limit the annual exclusion gift amount to $30,000 per donor rather than $15,000 per donee;
  • Possible elimination of the step-up in basis upon death; and
  • Require a 10-year minimum term for grantor retained annuity trusts (GRATs).

As Congress discusses the Bill and ultimately votes on it, there are planning techniques to consider with your planning professionals.  While not intended to be all encompassing, here are some strategies for you to consider:

  • Maximize gifts before the new law becomes effective.  Essentially a “use it or possibly lose it” approach;
  • If you are married, consider setting up a spousal lifetime access trust (SLAT) and utilizing all or a portion of your current $11,700,000 exclusion;
  • Implement shorter term GRATs prior to the date of any enacted legislation;
  • Consider sale transactions of businesses or other assets, as long-term capital gains rates may increase, and also keeping in mind that there may not be a step-up in basis upon death; and
  • Revisit your charitable intentions/goals to reduce or eliminate estate tax exposure.

These are just some planning techniques for you to consider.  Given the flurry of activity that any significant change in tax laws may bring to your advisors, we encourage you to schedule an appointment with your advisors to discuss options, so if there is a need to act, you are in the position to do so. 

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