New Legislation Proposed to Fight the Wealth Gap – I would guess that almost everyone has an opinion as to whether or not the “wealth gap” is something worth fighting about. No matter where you stand on this hot button issue, it is likely to remain a point of contention for years to come.
During March of 2021, Senator Bernie Sanders introduced the very descriptive, ‘For the 99.5 Percent Act’ (the “99.5 Percent Act”) which will significantly change the federal estate, gift and generation-skipping transfer tax.
The 99.5 Percent Act would lower the estate tax exemption and reduce the gift tax exemption to an amount lower than the estate tax exemption, while increasing tax rates on large gifts and estates.
Highlights of the 99.5 Percent Act:
- The estate tax exemption amount would be reduced to $3.5 Million per person ($7 Million for married couples). Currently, the estate tax exemption amount is $11.7 Million per individual ($23.4 Million for married couples), adjusted annually for changes in the cost of living. However, the current combined estate and gift tax exemption amount is already scheduled to be reduced to $5.49 Million per person after December 31, 2025.
- The amount of the exemption available to exclude lifetime transfers from gift tax under the new law would be limited to $1 Million per individual ($2 Million for married couples), with no adjustment for changes in the cost of living. Currently, the gift tax exemption is the same as the estate tax exemption and any amount not used during an individual’s lifetime is available to shelter transfers at death from estate tax. Under Sander’s proposal, there would be a progressive tax rate based upon the value of the decedent’s estate:
- There would be no tax on the first $3.5 Million of the estate.
- There would be a 45% tax on the estate in excess of $3.5 Million up to $10 Million.
- There would be a 50% tax on the estate in excess of $10 Million up to $50 Million.
- There would be a 55% tax on the estate in excess of $50 Million up to $1 Billion.
- There would be a 65% tax on the estate in excess of $1 Billion.
- Valuation discounts for transfers of “non-business assets” held in business entities, such as partnerships and limited liability companies, and for transfers of partial interests in entities where the entity is controlled by or majority-owned by members of the same family, would be significantly limited. Under current law, there are no such limitations.
- If an irrevocable grantor trust were to be established under the proposed law, the grantor would effectively be treated as owning the property in the irrevocable grantor trust for estate and gift tax purposes, causing the trust assets to be subject to estate tax at the grantor’s death or resulting in transfers subject to gift tax if distributions are made to other individuals during the grantor’s lifetime. Under the existing law, it is possible to create an irrevocable grantor trust which is not subject to estate tax on the grantor’s death and the only gift taxable transfer is at the time of transfer to the trust.
- The 99.5 Percent Act would also limit 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.
There are several other limits which Senator Sanders’ legislation would apply to close the controversial wealth gap. These battles regarding wealth inequality will probably continue to reverberate throughout our country for years to come. Battles on this issue are being fought everywhere on both a federal and state level. In, fact there has been legislation recently introduced in California which would place a an additional tax of 1% on wealth in excess of $50 million.
These are ongoing and hotly debated issues and it would take a very talented fortune teller to know whether any of these proposed laws will ever become law in fact. Only time and politics will provide the answer.
Did you enjoy reading, New Legislation Proposed to Fight the Wealth Gap? Check out one of our past articles, Being a Trustee: What are the responsibilities?
*This article is based on information from, U.S. Senate Introduces Legislation for Higher Taxes on Wealth, was written by: March 26, 2021 – Client AlertClient Alert | Private Client Services
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New Legislation Proposed to Fight the Wealth Gap
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