Proposed Legislation would turn estate planning on its head

The American Housing and Economic Mobility Act of 2021 (now “of 2024”) may have taken on new life recently as Kamala Harris promised, if elected, to make housing affordable. That promise has to be funded somehow and the “how” of it seems to be rolling back the estate and gift tax exclusion amounts significantly. At least, that’s what some people are saying.

In general terms, the proposed legislation is a wealth grab. Beginning at Section 402, the tax rate is adjusted UPWARD from 40% (the current rate) to fifty-five percent (55%) for estates under $13,000,000. The rate increases to 60% between $13 million and $93 million. Estates valued over 93 million would be taxed at 65%.

Subsection 402(b) would reduce the estate tax exclusion amount to $3.5 million. That’s a hefty cut from today’s $13.61 million dollar exclusion. It’s also significantly smaller than the 2017 exclusion of $5.49 if the TCJA sunsets in 2026.

The proposed act includes a “Billionaire Tax.” Estates valued over $1 Billion Dollars would be subject to a 10% surtax.

Grantor Retained Annuity Trusts would have a required minimum term of 10 years under Section 403. GRATs are designed to help wealthy families pass assets tax free to their heirs.

The proposed Act would also change the grantor trust rules for the purpose of pulling more wealth into the estate of a deceased owner. At present, grantor trusts can be used to “freeze” the value of assets for estate tax purposes if the trust is properly structured.

Section 405 would eliminate certain exemptions for the generation-skipping transfer tax. Section 406 would reduce the annual gift tax exclusion to $10,000 and would limit the cumulative number of tax free annual gifts to $20,000 per tax payer.

While it appears unlikely this proposed legislation would become law, it’s possible. It would require Democrats to take the presidency, the house and the senate and would require senate democrats to eliminate the filibuster. But we’re keeping an eye on this because stranger things have happened.