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Have you heard the buzz about the “For the 99.5% Act”? It is a bill that was introduced by Senator Bernie Sanders back in March and it has had people talking. This is because, while the bill has not yet passed, it stands to have a substantial impact on many people if it does go through. If passed, the changes made in the Act would likely become effective by the end of the year. Now is the time to plan accordingly. The bill could mean substantial estate tax consequences for many Americans, but there is still time to protections in place now to try to avoid these repercussions.

What Is the New Estate Tax Bill Senator Bernie Sanders is Proposing?

Right now, the federal estate tax exemption is at an all-time high. It increased substantially during the Trump Administration. The new estate tax bill proposed by Senator Sanders would seek to decrease the estate tax exemption back to lower levels, but it would remain indexed for inflation. The Act would lower the federal estate tax exemption to $3.5 million per individual and $7 million for married couples.

Furthermore, the federal gift tax exemption amount would be reduced under the act. More specifically, it would be reduced down to $1 million per person. The annual tax exemption on gifting would also be limited to certain transfers. This would include transfers to trusts and other specified family entities.

The Act also sets forth a bold increase in estate tax rates for those estates found in excess of the $3.5 million exemption amount. The estate tax would be on a sliding scale, increasing based on the value of an estate.

  • Estates valued over $3.5 million and up to $10 million, would be subject to a 45% tax rate.
  • Estates valued over $10 million and up to $50 million, would be subject to a 50% tax rate.
  • Estates valued over $50 million and up to $1 billion, would be subject to a 55% tax rate.
  • Estate valued over $1 billion would be subject to the highest rate of 65%.

Even those who may already have put plans in place to avoid estate taxes may want to revisit those plans. Grantor trusts have historically been the vehicle of choice to help avoid estate taxes. You see, traditionally, grantor trusts have enjoyed favorable income tax and estate tax treatment. The piece of legislation proposed by Senator Sanders, however, would significantly lessen the grantor trust’s effectiveness for this purpose. You see, under the proposed act, assets held within a grantor trust would remain to be considered owned by the grantor of the trust for other estate tax purposes. It would, therefore, be considered taxable in the grantor’s estate upon the death of the grantor. On top of this, any distributions made from a grantor trust to a beneficiary would implicate the gift tax.

Estate Planning Attorney

Do you want trusted estate planning help? Do you want an estate planning attorney with experience and who stays up to date on the most current happenings in the law? If so, Verras Law is the best choice for you and your loved ones. Contact Verras Law today.