On March 25, 2021, Senator Bernie Sanders introduced the For the 99.5 Percent Act (the “99.5 Percent Act”) which proposes to modify the estate, gift and generation-skipping transfer tax.
Proposed Estate and Gift Tax Rates and Exemptions
The 99.5 Percent Act would reduce the estate tax exemption, set the gift tax exemption at an amount lower than the estate tax exemption, and increase tax rates on large gifts and estates, effectively returning the gift and estate tax rules to the law in effect in 2009, but with higher rates. While generally increasing the gift and estate tax, the 99.5 Percent Act would provide beneficial valuation rules for farms and land subject to qualified conservation easements. These changes would apply to transfers occurring after December 31, 2021.
Under the 99.5 Percent Act:
Under current law, there is no tax on the first $11.7 Million of the estate (adjusted annually for changes in the cost of living, but scheduled to be reduced by 50% after December 31, 2025), and there is a 40% tax on the estate in excess of the exemption.
The 99.5 Percent Act Would Change Existing Planning Techniques
The 99.5 Percent Act also contains provisions that would significantly curtail the use of current planning techniques, such as the application of valuation discounts to certain interests, use of a grantor retained annuity trust (a “GRAT”), a grantor trust (in which the grantor is treated as the owner of the trust for income tax purposes) and annual exclusion gifts to trusts. These provisions of the 99.5 Percent Act, summarized below, would take effect after the date of enactment of the law.
With a closely divided Senate, it is too early to speculate which portions, if any, of the 99.5 Percent Act might become law. We will continue to update you as the legislation develops.
Earlier in the week, the California legislature introduced an amendment to the California Constitution which would impose a tax “surcharge” on wealth above $50 Million and reintroduced additions to the Revenue & Taxation Code which would impose an annual wealth tax of 1% on net worth in excess of $50 Million and 1.5% on net worth in excess of $1 Billion. Read more about this proposed legislation here.