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We have been committed throughout this year to continuously reaching out to update our valued clients and colleagues with respect to proposed changes in the gift and estate tax laws. In that vein, we want to inform you that a memo prepared by the House Ways and Means Committee outlining proposed tax law changes has been released, accompanied by the actual bills submitted to the House. The memo outlines a myriad of proposed corporate and individual tax law changes. It should be noted that the memo issued by the Ways and Means Committee is one step in the budget reconciliation process. It is uncertain whether these proposals will become law and, even if they do, they may still change significantly as the bill proceeds through the legislative process.

It is important to stress, nonetheless, that the proposals would represent an enormous and expansive overhaul of the gift and estate tax system. The technical and structural changes that would be introduced by these proposals are even more sweeping and problematic than the exemption and tax rate changes. In short, these proposals could truly uproot the foundation of traditional estate planning. Accordingly, taxpayers will need to consider taking immediate action or risk losing the closing window of opportunity to take advantage of significant planning opportunities available under current law.

While the proposals would not result in the reduction of the lifetime federal gift and estate tax exemption until January 1, 2022, the effective date of the portions of the proposals that apply to grantor trusts and valuation discounts will be the date of enactment. It is possible for these proposals to be enacted in the coming weeks. The following transfer tax provisions are of particular interest to our estate planning clients:

  • Reduction in the estate and gift tax exemption to $5,000,000, adjusted for inflation, for deaths and gifts after December 31, 2021.

  • Significant overhaul of existing grantor trust rules applying to any trust created or transfer made after the date of enactment.

    • Assets of a grantor trust would be included in the grantor’s gross estate.

    • Distributions from a grantor trust during the grantor’s lifetime (other than to the grantor or the grantor’s spouse) would be treated as gifts.

    • Toggling off grantor trust status during the grantor’s lifetime would be treated as a gift.

    • Sales and other transfers between a grantor and an irrevocable grantor trust would no longer be disregarded for income tax purposes. Assets of a grantor trust would be included in the grantor’s gross estate.

  • Elimination of valuation discounts for most transfers of nonbusiness assets held in an entity. This provision would be effective for transfers after the date of enactment.

  • Change in the taxation of qualified small business stock (QSBS) such that only 50% will be excluded from tax, with the remaining 50% subject to tax on any QSBS sold after the date of enactment.

  • Trusts and estates with income over $100,000 would be subject to a 3% surcharge tax based upon their modified adjusted gross income ("AGI").

Importantly, the overhaul of the grantor trust rules introduced by the proposals could eliminate the benefits of valuable estate planning techniques such as spousal lifetime access trusts (SLATs) , grantor retained annuity trusts (GRATs) , qualified personal residence trusts (QPRTs), qualified subchapter S trusts (QSSTs), life insurance trusts (ILITs) and sales to defective grantor trusts (IDGTs) . Taxpayers should focus on creating and funding some of the aforementioned vehicles, utilizing valuation discounts and using their gift and generation-skipping transfer (GST) tax exemptions before they lose them.

Notably, the memo does not address the current $10,000 cap on deductions for state and local taxes or the repeal of the “basis step up” that occurs at death.

Given the foregoing, we strongly encourage you to speak with us as soon as possible to take advantage of the current rules before they change. We will give first priority to clients who contact us without delay and have plans in place or in progress. Please email us at

Thank you.


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