The “For the 99.5% Act” was introduced to Congress on March 25, 2021. If passed, it will change the estate planning landscape drastically, beginning on January 1, 2022. In a nutshell, those with estates over $3.5 million ($7 million for a married couple) need to act in 2021 in order to save millions of dollars in transfer taxes.
The following are the highlights:
Federal Estate Tax
- Reduction in the estate tax exemption from $11.7 million to $3.5 million.
- Increase in the estate tax rate from 40% to 45% for the excess value over $3.5 million, 50% for the excess value over $10 million, 55% for the excess value over $50 million, all for estates of decedents dying after December 31, 2021.
Federal Gift Tax
- Reduction in the gift tax exemption to $1 million. Lifetime gifts exceeding $1 million would result in the payment of gift tax.
- Increase in the gift tax rate similar to that for the estate tax rate (as described above).
- Reduction in gift tax annual exclusion to $10,000 per-recipient, down from $15,000, with an annual cumulative limitation per donor of two times ($20,000) the annual exclusion.
Trusts
- Limitations on tax-exempt generation-skipping trusts, if the trust term is greater than 50 years.
- Imposition of requirements for grantor retained annuity trusts (GRATs):
- 10-year minimum trust term;
- Maximum trust term equal to the life expectancy of the annuitant plus 10-years; and
- Remainder interest must equal the greater of (i) 25% of the amount contributed to the trust, or (ii) $500,000, resulting in a taxable gift upon funding.
- New rules targeting new or newly funded grantor trusts, making trust assets included in a deceased grantor’s estate, and treating trust distributions to beneficiaries as gifts.
Valuation of Transferred Property
- Limitations on minority interest discounts and lack of marketability discounts when valuing certain assets in intra-family transfers, significantly curtailing discount planning.
Implications
If the bill is enacted:
- Married couples with a net worth greater than $7 million may no longer be able to utilize current strategies to legally reduce or eliminate estate and gift.
- Irrevocable grantor trusts, such as GRATs, SLATs and ILITs, will no longer be meaningfully effective.
Whether or not the “For the 99.5 % Act” is passed, many see it as a harbinger for the future of trusts and estates planning.
If you are not sure how the above bill will impact your estate, please reach out to me. We are recommending that families act now to optimize their use of current exemptions.
QUESTIONS? If you have questions or concerns regarding Trusts & Estates in New York, please contact Naim Bulbulia.
