For The 99.5 Percent Act - What It Is, What It Does And What To Do About It.

On March 25, 2021, Senator Bernie Sanders (I-VT) and Senator Sheldon Whitehouse (D-RI) introduced the “FOR THE 99.5 PERCENT ACT” which will dramatically and historically change estate planning by reducing the federal estate and gift tax credits, increasing estate, gift, and GST tax rates and including assets in certain trusts that are not now includible in estates. 

The following is a summary of the changes.

Estate, Gift, and GST Tax Credits :

 The estate, gift and generation skipping tax exemption of $11,700,000 would be reduced to $3,500,000 in the case of estate taxes and $1,000,000 in the case of gifts. (The gift tax exemption would not be indexed for inflation, while the estate tax exemption would continue to be indexed for inflation.)

The changes would be effective for decedents dying and gifts made on or after December 31, 2021.

 Planning: This is a “use-it-or-lose-it-now” provision which means that your $11,700,000 exemption can be passed either by dying or by making gifts. Transfers must take place before the effective date of these changes.

Tax Rate Increases:

Currently, the maximum gift, estate, and generation skipping tax rate is 40%. The Act changes the rate structure so that estates over $3,500,000 but under $10,000,000 will be taxed at 45%; over $10,000,000 up to $50,000,000 will be taxed at 50%; over $50,000,000 but under $1,000,000,000 will be taxed at 55%; and over $1,000,000,000 will be taxed at 65%.

Observation: The GST tax is the highest applicable federal estate tax, so a 65% tax will be imposed on generation skipping transfers.

Planning: For deaths occurring in 2020 where there is a surviving spouse and a QTIP trust, consider paying estate taxes on the first death rather than the usual deferral of estate taxes until the death of the survivor. 

The rate structure is effective for deaths, gifts, generation-skipping transfers occurring after December 31, 2021.

Intentionally Defective Irrevocable Grantor Trusts (“IDIGTs”) – No Step Up In Basis:

The Act makes it clear in no uncertain terms that assets in an intentionally defective irrevocable grantor trust (“IDIGT”) will not receive a step up in basis upon death unless the property is includible in the gross estate of the transferor.

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