Earlier in the year, Senator Bernie Sanders proposed new legislation that could make waves in the estate planning world. The “For the 99.5 Percent Act” was introduced, increasing the odds of sweeping federal estate and gift tax reforms during the second half of 2021. The proposed changes would significantly reduce the current federal gift and estate tax exemptions.
Current Exemption Amounts vs. Proposed Changes
In 2021, federal estate and gift tax exemptions are $11.7 million per person and $23.4 million per married couple. This allows individuals to gift away up to $11.7 million during their lifetime without triggering a gift tax. The “For the 99.5 Percent Act” would reduce this exemption to $3.5 million per person or $7 million per married couple, effective January 2022.
Currently, estates in excess of more than $11.7 million are taxed at a flat 40 percent on the excess amount. Proposed new rates would start at 45 percent for amounts in excess of $6.5 million, increasing incrementally with a maximum rate of 65 percent for those in excess of $1 billion.
Under the new legislation, annual exclusion giving will be capped at $30,000. Grantor trusts will no longer be afforded many of the current benefits. Assets owned by a grantor trust will be considered owned by the grantor and included in their estate at the time of their passing. This may potentially subject assets owned by the grantor to the estate tax. While currently existing grantor trusts will be grandfathered in, new trusts would not be.
Time to Act
The “For the 99.5 Percent Act” has not been finalized, but lawmakers are still debating the merits of these changes. Even if the legislation does become official policy, there is reason to be optimistic. The good news about the grandfather policy is that there is still time to act. If you have been considering a grantor trust for your estate, now is the time to put your plans into action. Reach out to us today by calling (281) 218-0880 or schedule online by clicking here to begin protecting your assets.
Author Bio
Kim Hegwood
Managing Attorney
Kim Hegwood is the Founder and Managing Attorney of Your Legacy Legal Care®, a Houston-based estate planning and elder law firm she established in 1998. A graduate of South Texas College of Law, Kim was inspired to focus her practice on elder law and estate planning after watching her own grandparents struggle with the challenges of aging. With nearly 30 years of experience, she helps families with wills, trusts, powers of attorney, Medicaid planning, and asset protection.
Kim is a Certified Dementia Practitioner and a member of the National Academy of Elder Law Attorneys, and her firm has been named Best Trust & Estate Law Firm by the Houston Chronicle. A mother of three, she spends her free time with her children and grandchildren and volunteers with several local charities.
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