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Key Takeaways & Insights

“For the 99.5% Act,” the proposed federal legislation pending in Washington, is expected to have a dramatic effect on the estate planning landscape for wealthy families. Some of the proposed changes have already passed the House Ways and Means Committee. Here is what you need to know moving forward.

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  • The estate and gift exemptions may revert to 2010 levels, which will increase tax penalties on more families.
  • The irrevocable grantor trusts may be pulled back into the grantor’s estate.
  • Sales to grantor trusts will now be treated as taxable transactions.
  • Transfers of non-business assets will no longer receive valuation discounts.

 

In April of this year we highlighted proposed federal legislation (S.994 -“For the 99.5% Act”) that would dramatically change the estate planning landscape for wealthy American families. Some of these proposed estate tax law changes have now worked their way through the House Ways and Means Committee and have just been released. As previously suggested, these provisions could become law as part of a Budget Reconciliation bill passing the House and receiving 50 Democratic votes in the Senate (plus the vote of Vice President Kamala Harris).

Here are some of the changes proposed by the House Ways and Means Committee:

Estate and Gift Exemptions Reverting to 2010 Levels

The current estate and gift exemption of $11.7MM per taxpayer ($23.4MM for a married couple) would revert to 2010 levels ($5MM per taxpayer, indexed for inflation).

Irrevocable Grantor Trusts Pulled Back into the Grantor’s Estate

Trusts of which the grantor is the deemed owner for income tax purposes will be pulled back into the grantor’s estate at death. This will eliminate a powerful estate planning technique used by families over decades to move wealth out of their taxable estates. This change will apply to trusts created or funded after the legislation is enacted.

Sales to Grantor Trusts Abolished

In a change not anticipated, sales to grantor trusts — once a favored way to shift future growth in the value of appreciating assets out of a grantor’s estate — will now be treated as taxable transactions. This change will also apply to trusts created or funded after the effective date of the legislation.

Valuation Discounts

Transfers of “non-business assets” will no longer be eligible for valuation discounts. Non-business assets are passive assets that are held for the production of income and not used in the active conduct of a trade or business. This change will apply to transfers made after the law is enacted.

Of course, it remains to be seen whether these proposed changes will become law. It is worth noting that these changes represent only a few pages of a much larger legislative proposal that runs more than 800 pages. Anything can happen, but one suspects that, in much of the debate moving forward, Democrats may focus on more high-profile issues such as capital gains taxes. We believe this makes it more likely that these estate and gift tax changes will become law.

Let Us Help You Navigate These Changes

As legislation evolves, please know our planning specialists are available to answer any questions you may have. They have extensive experience helping clients implement advanced wealth transfer solutions to achieve their estate planning goals and mitigate taxes. Contact us at your convenience.


Cerity Partners LLC (“Cerity Partners”) is a registered investment adviser with offices in California, Colorado, Illinois, Ohio, Michigan, New York, Massachusetts, and Texas. Registration of an Investment Advisor does not imply any level of skill or training. This commentary is limited to general information, and should not be construed as personal investment advice. There is no guarantee that the views and opinions expressed in this piece will come to pass. The information is deemed reliable as of the date of this commentary, but is not guaranteed, and subject to change without notice. It should not be considered as an offer to sell or a solicitation of an offer to buy any security.


Meet the Author

Paul McGloin

Partner & Chief Planning Officer

Paul is the Chief Planning Officer and a Partner in the New York office. He has over twenty-five years of experience in helping families create and optimize their wealth planning structures. His expertise extends beyond traditional trust and estate planning to areas such as asset protection planning, income tax strategies, charitable and philanthropic structuring, and planning for international families and individuals.

Prior to joining Cerity Partners, Paul was a Managing Director at Deutsche Bank’s Asset & Wealth Management division and the firm’s senior planning expert in the Americas. Paul practiced law in New York City for 11 years, representing both U.S. and international clients in their trust, estate and tax planning needs. Paul also has particular expertise in the areas of planning for owners and executives of private companies prior to liquidity events, planning for hedge fund and private equity principals, and planning for international clients who are investing in U.S.-based assets.

Paul is a graduate of Harvard Law School.

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