Have you been wondering what all the buzz has been about regarding the federal estate tax? Estate planning is not often a hot topic in the news, but when it is, people should definitely take notice. The big news broke back in March when Senator Bernie Sanders introduced the “For the 99.5% Act” in Congress. The Act has some big plans regarding the federal estate and gift taxes. Here, we will discuss the proposed changes detailed in the Act as well as why more and more people should pay special attention to tax planning when it comes to their estate plans.
The New Estate Tax Bill Proposed by Senator Bernie Sanders
The current federal estate tax exemption is $11.7 million for individuals and $23.4 for married couples. These are, of course, large exemption amounts and mean that most Americans would not be impacted by the estate tax because of the substantial exemption amounts. Under the For the 99.5% Act, however, those exemptions could be lowered to $3.5 million per person and $7 million per married couple. This is a 70% reduction in the estate tax exemption and means many more Americans would be impacted by the federal estate tax unless they put the necessary precautions and plans in place before such a change is made.
While the Act has been introduced to Congress, it has yet to pass. Even if it does pass, the changes would not take effect until the end of 2021. This means that if your estate is nearing the lowered exemption amounts proposed in the Act, now is the time to meet with a qualified estate planning attorney so that your estate avoids a potentially large tax bill.
In addition to lowering the federal exemption amounts for estates, the Act also proposes increases in the rate of estate taxation. The Act would put a sliding scale in place for the estate tax rate that increases based on the value of the estate. The proposed rates are as follows:
- Estates valued at $3.5 million and less than $10 million would be subject to a 45% estate tax rate.
- Estates valued at $10 million and less than $50 million would be subject to a 50% estate tax rate.
- Estates valued at $50 million and less than $1 billion would be subject to a 55% estate tax rate.
- Estates valued at $1 billion or more would be subject to an estate 65% estate tax rate.
There are also notable proposed changes to what have become traditional ways of avoiding estate taxes. For instance, assets held in a grantor trust would be considered a part of the grantor’s taxable estate upon his or her passing. Additionally, there is a proposed cap on the duration of trusts that would usually be Generation-Skipping Transfer tax-exempt at 50 years. After the 50-year time frame has passed, distributions from the trust to the skipped generation would most likely be subjected to the Generation-Skipping transfer tax.
Pittsburgh Estate Planning Attorney
Now is the best time to talk about the proposed estate tax changes on the horizon with a qualified attorney. The dedicated estate planning team at Jones Gregg Creehan & Gerace can help you put plans in place to protect the value of your estate should these changes go through. Contact us today.