On March 25, 2021, Senator Bernie Sanders introduced Senate Bill 994 (S.994) called “For the 99.5% Act.” This bill is aimed at the wealth of the top 0.5% of successful Americans.  This is the first piece of legislation introduced following President Joe Biden’s coming into office that would lower the federal estate tax exemption, and mirrors similar legislation by the Vermont Senator in 2019.  I discussed these proposed changes in late 2020 in my Borkuslaw Group Blog article.

In summary, the bill would make the following changes to many of the U.S. federal transfer tax provisions including:

  • Reduce the U.S. federal estate tax exemption to $3.5 million for U.S. citizens and U.S. domiciliaries;
  • Reduce the U.S. federal gift tax exemption to $1 million for U.S. citizens and U.S. domiciliaries for gifts made after December 31, 2021;
  • Increase the progressive federal gift and estate tax rates 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 effective date for these three proposed changes would affect decedents who die after December 31, 2021, and for gifts made after December 31, 2021.

Additionally, there are other provisions in the federal legislation worth noting – all of which would apply to transfers made after the date of enactment of the legislation:

  • The disallowance of a basis step up on death for assets held through a grantor trust, if the assets are not included in the grantor’s gross estate at the time of death;
  • Grantor Retained Annuity Trusts will be required to 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;

Another provision that would constrain the ability to create dynastic trusts that are exempt from generation-skipping transfer taxes, if the trust period is greater than 50 years, and would take effect on the legislation’s enactment date.

The bill directs that distributions to beneficiaries from a grantor trust be generally subject to U.S. federal gift tax – effective for trusts created after the legislative enactment date, or would impact contributions to trusts after enactment date, if the trust was created prior to the legislation.

Finally, Senator Sanders’ bill would sharply limit the annual gift tax exclusion up to no more than $20,000 per donor for certain types of transfers such as transfers to trusts.

It far from clear as of yet if the proposed legislation will gain any traction in Congress.  With a Democratically controlled Congress, many believe there is a good chance that the reduction of the federal estate tax exemption could happen, particularly as this was a campaign promise for the President.

Some of the other proposed items have been part of previously issued “Green Books” by the U.S. Treasury in some shape or form but never made their way into actual legislation. It should be noted that this bill does come on the heels of proposed legislation introduced by Senator Elizabeth Warren on March 1, 2021, dubbed the “Ultra-Millionaire Tax” and proposed a new federal wealth tax.

If any of the foregoing proposals should be passed, there will be a significant impact on many of the common succession planning techniques to reduce federal transfers for successful individuals and long-standing family businesses, land-owners, ranchers and farms.  I will continue to monitor the progress of these proposals and any other legislative changes and be prepared to help families.

The good news is you still have some time if you want to be prepared for these changes.  Remember you will need to move quickly so your planning is grandfathered in prior to the December 31, 2021 deadline.

Contact our team at Borkuslaw Group today and make a live online appointment!

Please note that information contained in this news alert is not and should not be construed as legal advice or opinion nor does this information alert create an attorney-client relationship.

About the Author: Randall Borkus

We believe that business succession, asset protection and estate planning are less about numbers and much more about helping people preserve, protect, and provide for who and what is most important to them.

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