On March 25, 2021, Senator Bernie Sanders (I-VT) and Senator Sheldon Whitehouse (D-RI) introducted the For the 99.5 Percent Act (the “Act”). If the Act, or anything like it, becomes law, there is now only a small window of opportunity to implement estate planning strategies that have been utilized for years. Additionally, estate planning will become materially relevant to taxpayers whose taxable estates are less than $10 million.

We now have the shot across the bow we all knew was coming. Some shots across the bow are intended as warnings. This one is a sighting shot – zeroing in on the target. The planning window is open now but closing fast.

So, what is in the Act?

1. Effective for decedents dying, and generation-skipping transfers and gifts made, after December 31, 2021:
a. $3,500,000 per taxpayer basic exclusion amount, with continued indexing for inflation;
b. $1,000,000 per taxpayer gift tax exclusion, with no indexing for inflation.

2. Effective for deaths, gifts, and generation-skipping transfers occurring after December 31, 2021, maximum rates of:
a. 45% for estates greater than $3,500,000 but not over $10,000,000;
b. 50% for estates greater than $10,000,000 but not over $50,000,000;
c. 55% for estates greater than $50,000,000 but not over $1,000,000,000; and
d. 65% for estates over $1,000,000,000.

3. Effective for transfers after, and trusts created on or after, the date of enactment:
a. Clarification that assets in an “Intentionally Defective Grantor Trust” (IDGT) receive no step-up in basis upon death unless the assets are includible in the gross estate of the transfer;
b. Elimination of valuation discounts for transfers of non-business assets held by family entities;
c. Effective elimination of zeroed-out and rolling GRAT transfers by requiring a minimum GRAT term of 10 years and a maximum GRAT term of the annuitant’s life expectancy plus 10 years, as well as caps on remainder interests; and
d. Unless grandfathered:
i. Assets in an IDGT would be includible in the estate of the deemed owner;
ii. Distributions from an IDGT to beneficiaries during the life of the deemed owner would be treated as a transfer by gift;
iii. The assets of an IDGT would be treated as a transfer by gift made by the deemed owner in the event the grantor status is turned off during the life of the deemed owner; and
iv. Any transfers on or after the date of enactment to IDGTs created prior enactment would be includible in the grantor’s estate.

4. Effective on the date of enactment, there will be no GST exempt status for any trust which has a date of termination greater than 50 years after the date on which it was created. Any trust created prior to enactment shall be deemed to be a qualifying trust for a period of 50 years after the date of enactment.

5. Effective for any calendar year beginning after the date of enactment, certain annual gifts by a transferor in trust would be limited to 2x the annual exclusion per donor.

In addition to the For the 99.5 Percent Act, bills imposing capital gains tax upon death and imposing a tax on any increase in value of assets from year-to-year (i.e., wealth tax) have also been introduced separately.

The bullets are flying. The aim is getting better. If you have been putting off planning, call your advisor today.

The Farner & Perrin law firm is transitioning to reopening our offices. We have limited staff on site daily, with most of us working remotely. Be assured we continue to be operational and ready to serve your trusts and estates needs. However, in the interests of everyone’s health and safety we are not conducting in-person meetings at this time.  

AND THE WINNERS ARE….

TOP TEN MOST COMMON ESTATE PLANNING MISTAKES

People work a lifetime to save and accumulate wealth, and usually intend to pass it on to their children (or other heirs) at death. Unfortunately, too many people neglect how their wealth will ultimately be transferred, and their lack of planning can wreak havoc with their good intentions. Reminiscent of the David Letterman show, here are the “top 10” estate planning mistakes that we commonly see, in reverse order:

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ADDING INSULT TO INJURY

DEATH FOLLOWING DIVORCE

Spend some time searching on the internet, and you will find no shortage of studies, statistics and facts about divorce. You will find everything from its major causes (money, infidelity) to its demographics (highest rate in Russia, lowest in India) to its incidences among occupations (highest among bartenders, lowest optometrists). As the rate of marriage trends downward in American society, the rate of divorce is not surprisingly somewhat slowing. Yet, the rate of divorce in second marriages is higher than in first marriages. And another noteworthy trend is the divorce rate among people age 50 and older has doubled in the last twenty years.

If not fascinating, these factoids at least focus us on the reality of divorce in our families, now or in the future.

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IN CASE YOU MISSED IT:

2019 LAW CHANGES AFFECTING ESTATES AND TRUSTS

Texas

The Texas legislature meets only in the odd years, so it is currently out of session. While 2019 was not a banner year for probate and trust law, allow us to share select highlights:

Access to Digital Assets. An executor now has specific authority to seek a court order to access the decedent’s digital assets. Digital assets are broadly defined. A good way to think about them is as electronic substitutes for items that used to be physically maintained, e.g., records, correspondence, books, CDs, and videos. Digital assets may also include email accounts and social media accounts, such as Facebook. An executor’s authority may be limited by the terms of certain accounts.

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