There is a misconception that an estate planning strategy is something the wealthy do later…
Colloquially referred to as the “For the 99.5% Act,” Senate Bill 994 (S.994) is a sweeping piece of legislation introduced on March 25, 2021, by Senator Bernie Sanders which aims to limit the wealth of the richest 0.5%. The bill finds historical precedent in President Roosevelt’s 1910 push to establish a progressive estate tax aimed at reducing the enormous concentration of wealth that existed during the Gilded Age. Further, it delivers on President Biden’s campaign promise to lower the federal estate tax exemption from the $11.7 million set by his predecessor.
Despite the Democrats maintaining control of Congress, it is unclear if S.994 will gain traction. Nonetheless, if passed it would include the following three legislative changes:
- The U.S. federal estate tax exemption reduced to $3.5 million for U.S. citizens and U.S. domiciliaries.
- The U.S. federal gift tax exemption reduced to $1 million for U.S. citizens and U.S. domiciliaries.
- The progressive federal gift and estate tax rates increased to:
- 45% for the excess value over $3.5 million
- 50% for the excess value of $10 million
- 55% for the excess value of $50 million
- 65% for the excess value of $1 billion
The start date by which these changes would come into effect is December 31, 2021, and while many will look at numbers like $3.5 million and think that they need not worry, this may change if one considers that an estate’s value includes all real estate, vehicles, assets, and financial accounts. What’s more, S.994 includes additional provisions that impact everyone regardless of wealth. These are:
- Elimination of the step-up on death basis for assets held through a grantor trust if not included in the grantor’s gross estate at the time of death.
- Requirement that Grantor Retained Annuity Trusts (GRATs) have a minimum 10-year term and a 25% minimum value for the remainder interest.
- Elimination or reduction of valuable discounts for transfers of interests in entities such as family limited partnerships that are not conducting an active trade or business.
In addition, Sanders’ proposed legislation would see the annual gift tax exclusion limited to $20,000 per donor for transfers to trusts and certain other types of transfers.
Such changes would have a resounding impact on common estate and long-term care planning techniques. The details are beyond the scope of the present article but our friends at Borkus Law Group have written a detailed explanation for those interested in learning more.
If passed, the “For the 99.5% Act” would not come into effect until December 31, 2021, and yet those who wish to be prepared should act now. To discuss how S.994 may impact your estate and to talk about changes you may want to make, do not hesitate to reach out to the Law Firm of Christopher W. Dumm either by calling us at 417-623-2062 or using the contact form on our website.
Contact the Estate Planning Attorneys at the Law Firm of Christopher W. Dumm