A Message About Unprecedented Changes Proposed To Gift And Estate Tax Laws

We hope this message finds you and your family safe and healthy. The first few months of 2021 saw a flurry of activity from Congress and the White House in the form of Legislative Bills and Executive Orders.?The theme is clear: a strong intent by Congress to address tax increases to pay for Pandemic Relief, Infrastructure, and other programs.

The Bills and Orders can be quite confusing and difficult to follow so we wanted to alert you to what we have learned about two major pieces of legislation that are related to your planning and actions we believe you should take in response:

Read on so you and your family are in the best position to continue to Provide. Protect. Prosper.

From the Bill?Introduced in Senate (03/25/2021)?117th CONGRESS

1st Session

A BILL

To amend?the?Internal Revenue Code of 1986 to reinstate estate and generation-skipping taxes, and?for?other purposes.

To amend?the?Internal Revenue Code of 1986 to reinstate estate and generation-skipping taxes, and?for?other purposes.

This?Act?may be cited as?the?“For?the?99.5?Percent?Act”.

Highlights

Current estate, gift and generation-skipping transfer tax exemptions and tax rates may be affected if new tax legislation passes

President Biden’s American Families Plan would eliminate the step-up in basis upon death

The proposed For the 99.5% Act includes provisions that could significantly affect how wealth is transferred and restrict widely used estate planning techniques

Summary

1.?"For the 99.5% Act" introduced by Senator Bernie Sanders (I-VT) on March 25, 2021 (the "Sanders' Bill"), and?

2.?"The STEP Act” (Sensible Taxation and Equity Promotion Act) introduced by Senator Chris Van Hollen (D-Md.) on March 29, 2021 ("Van Hollen Bill).”??

These Bills are lengthy and complex and the following is merely an informal summary of the highlights of each. There is still a lot of uncertainty with potential negotiated revisions or if the Bills will be passed into law.

The Sanders’ Bill - For the 99.5% Act

1. Named after the concept that the top 0.5% of wealthy individuals need to pay their fair share of taxes;
2. Proposed Effective Date of?December 31, 2021; Some provisions are effective as of the date of enactment (date signed);
3. Reduce the Estate Tax & GST exemption from $11,700,000 to $3,500,000;
4. Reduce the Lifetime Gift Tax exemption from $11,700,000 to $1,000,000;
5. Increase the Estate and Gift Tax Rate from 40% to 45%-65%;
6. GST exemption would last for only 50 years;
7. New Valuation Rules: No valuation discounts for gift & estate taxes (i.e. FLP, LLC, etc);
8. Reduce the Annual Gift Tax exclusion amount to a MAX of $30,000;
9. Grantor Trusts would be included in the grantor’s gross estate at death;
10. Irrevocable Life Insurance Trusts (ILIT) negatively affected.

The Van Hollen's Bill - The STEP Act

1. Proposed Effective Date retroactive to January 1, 2021;
2. Repeal of Stepped Up Basis at Death; Capital Gain realization at Death;
3. Repeal of Carryover Basis for Gifts; Capital Gain realization at Gift;
4. Exemptions and Exceptions to Capital Gain realization;
5. Increase Capital Gains Tax Rate to 39.6% on certain gains;
6. Deemed Recognition Event for all property held in non-grantor trusts every 21 years (similar to the Canadian tax system).

What is the chance these Bills will pass?

1. The U.S. Senate is tied 50/50 with VP Harris voting in the event of a tie vote;
2. A Republican Senator could filibuster the passage of a Bill;
3. The Senate has a rule that any Senator can filibuster but 60 Senators can end a filibuster;
4. A Bill could pass via Budget Reconciliation where it only needs a majority vote and it is not subject to filibuster.

What actions should you take:

1. Update your Financial Power of Attorney to allow for tax-motivated Gifting should you become incapacitated; also may be needed for new funding options for ILITs;
2. Don’t wait until end of the year. Get started now before the Date of Enactment and while you have time to meet with your advisors and implement your strategy;
3. Learn your options;
4. Use it or Lose it (Use most if not all of your lifetime gift exclusion in 2021 before it is reduced);
5. Keep your options open (i.e. Disclaimers, etc);
6. New planning strategies for ILITs;
7. Contact us for a team meeting;?

• This planning is best done with the coordinated efforts of your attorney, your CPA and your financial advisors in conjunction with Board Certified Estate Planning Attorneys as forecasts need to be made;
• We can recommend Board Certified Estate Planning Attorneys as well as Tax Attorneys
• We need to crunch the numbers and prepare planning scenarios;
• You need to understand the risks, the pros and the cons.

This is an important call to action for families to take immediate steps to avoid or minimize these taxes. Our objective is to make sure you are aware that time is of the essence and if you want to consider anticipatory planning you need to schedule a conference (via phone or Zoom) as soon as possible.

Email?Teresa?to set up a conference call with her team. Or call 305-901-9136

Be Prepared! Be Proactive Not Reactive!