Estate Tax Legislation – Where are we now?

By: Ami S. Longstreet

In June I wrote that close attention and possibly quick action may be required for estate planning this year.  My message is still the same as we continue to watch the legislative negotiations in Washington develop.

On September 13 the House Ways & Means Committee released proposals for over $2 trillion dollars in net tax increases.  Many of these proposals will dramatically impact private wealth and the transfer of assets between generations.

The legislation is not finalized but nonetheless clients should be acting or actively considering transactions to be completed by the end of this year.

The following is a brief overview of the key proposals impacting estate planning.

The current federal estate tax exemption amount of $11.7 million per person; the current proposal is to reduce this to an inflation adjusted amount of approximately $6.02 million as of January 1, 2022. The good news is that currently the step up in basis to fair market value at date of death that beneficiaries have enjoyed in the past is not being threatened by these proposals at this time; instead the lifetime exemption amount may be reduced.   Clients who wish to preserve their full exemption amounts should consider making gifts to younger generations this year.

Valuation discounts have been a common tool in our estate planning process and the new proposals significantly limit the discount use and this effective date has been proposed for date of legislation enactment which could be before the end of this year.  Again, if a client has delayed gifting, now is the time to act.

The proposed tax law changes will also make substantive changes to income tax rates, capital gain rates and retirement accounts.  In addition and very importantly for planning purposes, there are significant changes proposed regarding grantor trusts, and these proposed changes will be described in a blog by Ryan Hartnett.