THOUGHT LEADERSHIP PERSPECTIVES

BY MARIANNE INFORZATO, CFP® AND JULIA ZIECHMANN, JD, LLM

• Estate Tax Exemption Reduced to $3.5 Million
  Effective the first day of 2022, the estate tax exemption amount would drop to $3.5 million per person from the present level of $11.7 million per person. This means the total exemption for a married couple would be $7,000,000. Going forward, the rate will not be adjusted annually to account for inflation. Surviving spouses who already have their portability allowance will not have the allowance reduced under this legislation.

• Lifetime Gifting over $1 Million Will Be Subject to Tax
  The lifetime gifting exemption will be limited to $1,000,000 after 2021.

• Annual Exclusion Gifting Limited for Certain Gifts
  The annual exclusion for certain gifts will be limited to $30,000 per donor per year. These include gifts to trusts, interests in certain family entities, and transfers of assets that cannot be immediately liquidated by the donee.

• Increase in Estate and Gift Tax Rates
  The current flat estate tax rate of 40% will also go up in 2022 if the proposed bill is passed. This increase will make the rate a progressive rate beginning at 45% for taxable 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, and 65% for estates over $1 billion.

• Limits on Current Estate Planning Tools
  Some of the primary tools and strategies used in the past will not be available or will be heavily limited. These include Grantor Retained Annuity Trusts (GRATs), Grantor Trusts, and family entity valuation discounts.

• Taxation on Multi-Generational Trusts
  The proposed legislation would limit a trust that is otherwise exempt from the GST tax to a 50-year term and cause pre-existing trusts to be deemed ‘terminated’ 50 years after the passage date of the Act.

• Realization of Gains at Time of Gift or Death
  Property will be treated as sold for fair market value when transferred by gift, bequest, or to a non-grantor trust. There would be exceptions for certain transfers of tangible personal property, transfers to a spouse and transfers to a charity.

• Lifetime and At Death Exclusions
  H.R.2286 would exclude annual exclusion gifts and $1 million of net capital gain at death. The STEP Act would provide a “lifetime exclusion” of $100,000 of gain and at death would exclude $1 million, less the used “lifetime exclusion”.

• Transfers to Trusts
  Transfers to Grantor Trusts which are includible in the estate of the Grantor will not be a deemed sale. In that case, the deemed sale would occur (1) when a distribution is made to a beneficiary other than the Grantor, (2) the Grantor ceased to be the deemed owner or (3) the trust ceases to be includible in the gross estate of the Grantor. For transfers to most other trusts, the transfer would be treated as a sale. In addition, property held in a trust long-term would be deemed sold at intervals. Under H.R.2286, each asset held in trust would be deemed sold every 30 years. Under the STEP Act, all property held in trust would be treated as sold every 21 years.