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On March 25, 2021, Senators Bernie Sanders (VT) and Sheldon Whitehouse (RI) introduced the For the 99.5% Act (the “Act”), which proposes major changes to the U.S. transfer tax regime by increasing estate, gift and generation-skipping transfer (GST) taxes and vitiating the effectiveness of certain wealth transfer planning techniques.
The chart below highlights the proposed substantial reductions in estate, gift and GST exemption amounts and increases in transfer tax rates for gifts made, and estates of decedents dying, after December 31, 2021:
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Current Exemption |
Proposed Exemption |
Current Rate |
Proposed Rate |
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Gift Tax |
$10 million, adjusted for inflation (currently $11.7 million) |
$1 million, not adjusted for inflation |
Progressive tax, ranging from 18 percent to 40 percent |
Progressive tax, ranging from 45 percent to 65 percent |
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GST Tax |
$10 million, adjusted for inflation (currently $11.7 million) |
$3.5 million, not adjusted for inflation |
Flat rate equal to the maximum estate tax rate (40 percent) |
Flat rate equal to the maximum estate tax rate (65 percent) |
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Estate Tax |
$10 million, adjusted for inflation (currently $11.7 million) |
$3.5 million, not adjusted for inflation |
Progressive tax, ranging from 18 percent to 40 percent |
Progressive tax, ranging from 45 percent to 65 percent |
Other proposed changes would affect transfers made, and trusts created, after the enactment date of the Act. These changes include:
It is unclear which, if any, of these provisions will be enacted into law and—other than the proposed reductions in exemption amounts and increases in tax rates which become effective on January 1, 2022—what the effective date would be.
What is clear, is that the Act is intended to substantially increase the transfer tax burden on high-net-worth families. By engaging in proactive planning now, however, you can still take advantage of the current law, which is considerably more favorable.
Due to the introduction of the Act, we encourage you to revisit your estate plan to ensure that it continues to reflect your wishes and that you consider if you should take advantage of certain effective wealth transfer planning techniques while they are still available.
Please contact us if you wish to review your current plan in light of these proposed changes.
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