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The Taxman is Eyeing the Wealthy

Senator Bernie Sanders recently introduced legislation called the "For the 99.5% Act," aimed at the wealthiest Americans. The proposal stated that “the fairest way to reduce wealth inequality … is to enact a progressive estate tax on the inherited wealth of multi-millionaires and billionaires.” If passed, this bill will have a significant effect on the U.S. gift, estate and generation-skipping transfer tax system. Specifically, the "For the 99.5% Act" proposes to:

· Reduce the U.S. federal estate tax exemption from $11.7 million to $3.5 million per person for U.S. citizens and domiciliaries;

· Reduce the U.S. federal gift tax exemption from $11.7 million to $1 million for U.S. citizens and domiciliaries;

· Increase the federal gift and estate tax rate from 40% to a progressive rate, as follows:

o 45% for the excess value over $3.5 million

o 50% for the excess value over $10 million

o 55% for the excess value over $50 million

o 65% for the excess value over $1 billion;

· Eliminate certain valuable benefits of defective grantor trusts;

· Eliminate valuation discounts commonly used in connection with certain estate tax planning techniques;

· Require Grantor Retained Annuity Trusts (GRATs) to have a minimum term of 10 years and a minimum value for the remainder interest;

· Curtail the benefit of the generation-skipping transfer (GST) tax exemption, such that estate tax will be payable after a specific term of years;

· Cap the total amount of the annual exclusion to $20,000 per donor for certain types of gifts.

This Act follows proposed legislation recently introduced by Senator Elizabeth Warren called the “Ultra-Millionaire Tax,” which proposes a new federal wealth tax. It is unknown which, if any, of these proposed laws will be passed by a Democratically-controlled Congress, although many believe that there will be a reduction in the federal estate tax exemption, in one form or another. One thing is certain: the writing is on the wall. There is an enormous opportunity now for wealthy clients to take advantage of the current estate tax exemption of $11.7 million, create GRATs, utilize valuation discounts, and otherwise implement valuable estate tax planning techniques before they are impacted by future legislation. Likewise, estates under administration should reconsider certain elections, knowing that the tax landscape is likely to change.

Please contact us at to learn about how this proposed legislation could affect your estate plan and what to do about it.

DISCLAIMER: We provide the information in this article for general information purposes only, and these materials do not constitute legal or other professional advice. We do not accept any responsibility for any loss that may arise from reliance on the information contained herein. No reader should act or refrain from acting based on information contained in this article without seeking advice of counsel.


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