There has been a lot of discussion regarding proposed changes to the estate and capital gain tax laws.
These are evolving topics, and the information will continue to change over the coming months. None of the proposals are law at this time, but it is important to watch how they progress. Here are summaries of two recent proposals.
The Sensible Taxation and Equity Promotion (STEP) Act was presented by Sens. Chris Van Hollen, Cory Booker, Bernie Sanders, Sheldon Whitehouse and Elizabeth Warren.
The STEP Act calls for the recognition of gain when assets are transferred at death; gifted; transferred to a non-grantor trust (a non-grantor trust is a trust where the person who made the trust — (the grantor — is not considered the owner of the assets for the purposes of income and estate taxes); transferred to a grantor trust, where the assets are not included in the grantor’s taxable estate (these trusts are called intentionally defective irrevocable trusts); and every 21 years when held in multigenerational, non-grantor trusts such as dynasty trusts.
The STEP Act excludes the first $1 million of gains at death, and $100,000 of this exclusion can be used for lifetime gifts.
In addition to these exemptions, the following transfers will be exempted:
• transfers of tangible personal property
• transfers to spouses
• transfers to charities, charitable trusts, disability trusts and cemetery trusts
For illiquid assets transferred at death or held in multigenerational non-grantor trusts, the tax can be paid over a 15-year period. In the event the asset is liquidated, the tax would be due immediately.
The second proposal is the For The 99.5% Act. This act was introduced by Sens. Whitehouse and Sanders.
The act proposes to reduce the estate tax exemption to $3.5 million per person and the gift exemption to $1 million.
The estate tax rates would be modified as follows:
• 45% for estates between $3.5 million and $10 million
• 50% for estates between $10 million and $50 million
• 55% for estates between $50 million and $1 billion
• 65% for estates over $1 billion
Additionally, this act proposes to reduce the annual gift exclusion to $10,000, with the total amount a person could gift each year capped at $20,000.
As estate tax relief to farmers, the proposed act provides the ability to reduce the value of farmland by $3 million for estate tax purposes.
We will continue to watch these proposals as they proceed through the lawmaking process. There is a long way to go before these would become tax law.
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers P.A. Contact him at [email protected].